On 31 Dec 2000, at 8:41, Jim Stewart wrote:
> I'm OK with "DEBT instruments" denominated in Gold as long as its
clear they
> are NOT money.
A debt instrument can NEVER be money, it is merely a contract
(promise) to pay.
Claude wrote:
>I am not sure you realize what you are saying. Gold denominated
>debt instruments can also include derivatives like options and
>future contracts. Some of these contracts can exposed the debtor
>to unlimited risks.
Precisely Claude, it makes absolutely NO difference what a "DEBT
instrument" is denominated in; whether you owe me 10000 USD or 10000
grams of gold or 10000 cornflakes, you still owe me, and the ONLY
value I have is your ABILITY to pay.
If for any reason you lose that ability to pay, I lose. In other
words, having a portion of a currency backed by debt instruments is in
effect having that portion backed by NOTHING, no matter what the
denomination. That is how one ends up with a "fractional reserve"
situation. IOW only a fraction of the assets declared by the financial
institution (currency) actually exist, the rest is just promises.
IMNSHO a very dangerous and unhappy situation!
Regards,
Sidd.
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