| To: mishedlo who wrote (62173) | 1/18/2007 10:44:53 AM |
| From: Don Lloyd | 1 Recommendation Respond to of 115618 |
| |
Mish,
If Opec wants to convert dollars or Euros to gold nothing is stopping them right now. I wish they would do that. They can even go one further and back their currencies in gold if they want to. But that will not affect the price of oil or gasoline one bit. It will however affect the price of gold by increasing the demand for it over other currencies, with gold in this case functioning as a currency.
At any instant in time, the total quantity of any exchange-valued good, whether it be dollars, euros, gold, or whatever, is both fixed and finite. Every unit of every exchange-valued good is owned at every instant in time by one, and only one, person or entity.
For the exchange value of any of these goods to go up, there must be a net increase in the demand to hold a given quantity of the good in question. When this occurs, there is an increased stress on the finite supply of the good and its scarcity value must rise to damp this increased demand to hold which cannot otherwise be physically accommodated.
OTOH, the use of an exchange-valued good in an actual transaction or exchange puts no additional stress on its finite supply. An exchange merely transfers ownership of the exchange-valued good from the buyer of a good being purchased to the seller.
While in more primitive economies people had to physically accumulate an exchange-valued good (money, say) over time for a future purchase, this is largely no longer the case. If the buyer of oil or whatever wants to hold the purchasing medium more than a microsecond before exchanging it, he can, but he doesn't have to. And if he doesn't, he puts no stress on the finite supply of the medium and produces no increase in the demand to hold the medium.
Net net, hold what you want as long as you want, and only convert it to a purchasing medium at the last microsecond.
Regards, Don |
