Special Report/Investment Guide 2013 | Jan 24, 2013 | 12860 views
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Jan 24, 2013
Re: If one cuts off the incessant money printing across the globe, gold would be reduced to a worthless asset in the end.
Totally disagree. A currency can be either asset-backed (i.e. with an intrinsic value) or fiat (i.e. without any instrisic value). In either case, through thousands of years, gold has remained a store of value because of its unique properties regardless of the quantity of currency in circulation.
First off, it exists. Second, it is almost invulnerable to forces of nature. Third, it is beautiful to look at and does not have to be physically consumed to be useful. Fourth, it takes a large amount of effort to produce and therefore a small quantity represents a lot of value. Fifth, it is easily assayable. Sixth, it can be divided into very tiny quantities whose value depends solely upon its amount.
All these qualities together makes it ideal as a store of value and a medium of exchange, i.e., money.
On the other hand, a fiat currency with zero intrinsic value will always drop to that level, regardless of the government\'s intention which is hard enough to figure out in any case. In fact, after Nixon trashed Bretton Woods and transformed all major currencies in the world into fiat currency overnight, every government has been hell-bent on making its currency worthless at the expense of the savers. This supposedly helps their \"exports\" but so does a fire sale which can never be a viable long-term business strategy and yet the insanity continues.
For example, after WWII when the Indian Rupee went off the silver standard, its purchasing power has dropped to 1/500th. Since 1971, its purchasing power has dropped to 1/200th and counting.
A lesson from history for the benefit of Mr. Chidambaram.
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