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May 6, 2005

A Thin Veneer

It’s Yom haShoah. Time, again, to reflect on the events of 60+ years ago, and what they mean for us today.

My father survived the Holocaust under rather unusual circumstances1. Growing up, as the child of a Survivor, I tend to think my childhood as having been fairly normal. But there were a few telltale signs that not all was completely as it seemed.

All the years I was growing up, we had gold hidden in the basement of our house. “Dad,” I would plead, “there are these things called banks …”. “You never know.” he would reply, thoughtfully holding up a gold bar, “One of these might buy a loaf of bread, or a sack of potatoes, some day.” And so the gold remained, a hedge against eventualities I could never quite wrap my head around.

It’s hard for us to remember, today, but Germany, before the rise of the Nazis, was the most civilized country in Europe. And German Jews were better off than their co-religionist anywhere else in Europe or, probably, in the world. But the veneer of civilization is thin. And my father, having learned that lesson well, could never be as complacent as I.


1 In honour of the day, please take some time out, and watch the video.

Posted by distler at May 6, 2005 3:16 AM

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11 Comments & 1 Trackback

Re: A Thin Veneer

I’ve noticed quite a large number of folks who grew up during the great depression in America or places with a lot of political upheavals, tend to not really trust banks nor the stability of governments. This is especially noticeable in folks who came from places like pre-1949 China, central europe, Russia, Ukraine, etc … before 1945, Korea, etc …

Even today in places like China, Taiwan, India, etc … people still don’t trust paper currency and only really consider gold to be the only true “real” currency. One just has to see all the episodes of hyperinflation over the decades, such as 1920’s Weimar Germany, 1990’s Yugoslavia, 1980’s Israel, post-WW1 Austria, post-Soviet Ukraine, Argentina, Saddam’s Iraq, etc … It can make one very cynical about how governments will almost always resort to printing up money to solve its problems. The last time this was a problem in America, inflation was as high as 20% per annum around the end of the Carter administration in 1980.

Posted by: JC on May 6, 2005 3:31 PM | Permalink | Reply to this

Re: A Thin Veneer

Well, yes, Jacques, I think that the degree of security and consequent beliefs of your father and yours could not be more different. And yes, to some extent I believe that a real, full human being should have experienced at least a fraction of your father’s life - otherwise something is missing.

Everytime I look at the history of the World War II and the history of antisemitism in particular, I get very sad and upset. What the Nazis were doing was worse than any other political sickness I’ve ever criticized. And their guilt was so large that they can’t handle it themselves.

Even the people who were effectively helping them - like Chamberlain and Daladier - did enough wrong things to deserve the prison for decades. Nazis should have been stopped as early as in 1936.

The golden standard was, when you were a kid, a completely rational and commonsense approach, I think.

Posted by: Lubos Motl on May 7, 2005 6:57 PM | Permalink | Reply to this

Re: A Thin Veneer

Well, yes, Jacques, I think that the degree of security and consequent beliefs of your father and yours could not be more different.

Among other things, I’m somewhat to the right of where my father stood, politically.

My belief in the stability of the social order that makes Capitalism possible (as well as the hiding of gold in the basement unnecessary) was something he didn’t quite share. Social orders were made by men, and could (all too easily) be unmade. So, “That’s just the way things work.” seemed like a less than compelling argument to him.

And yes, to some extent I believe that a real, full human being should have experienced at least a fraction of your father’s life - otherwise something is missing.

I wouldn’t wish, on my worst enemy, a fraction of what my father (and many, many others) lived through.

I should hope that we can learn from his experience without living through it. Which is why I put up a link once a year.

The golden standard was, when you were a kid, a completely rational and commonsense approach, I think.

I should have said that, in the 1970s (when this took place), investing in gold, as a hedge against inflation, enjoyed a certain popularity. As an investment, it didn’t work out very well. He took a bath when the price of gold subsequently plummeted.

But it had a dual purpose for him, like the jewelry he bought, in somewhat lavish quantity, for my mother.

Posted by: Jacques Distler on May 7, 2005 10:24 PM | Permalink | PGP Sig | Reply to this

Re: A Thin Veneer

Gold ceased to be a real convertible currency in America once President Franklin D. Roosevelt (FDR) signed a bill which made it illegal for Americans to use gold for monetary purposes. Prior to FDR in the white house, American dollar bills were fully convertible with gold.

The Bretton Woods quasi “gold standard” system only really used gold for transactions between central banks of different countries. It was very much a farce to the very day President Richard Nixon took the American dollar completely off any gold standard in 1971. The only country which took gold seriously in those days was France under Charles de Gaulle, who was always demanding gold for the large amounts of American dollars in the French treasury. (One of de Gaulle’s economic advisors was a very strong advocate of gold). The policies of President Lyndon Johnson in the “great society” programs and the Vietnam war (ie. “guns and butter”), really pushed the Bretton Woods system almost to the breaking point.

The only true hard gold standard is one where paper currency is fully 100% convertible with a fixed amount of gold per dollar, at the government’s treasury department. Otherwise the currency will always be subjected to political manipulation and cheating (ie. printing up money, manipulating the gold price to “hide” inflation, etc …). Nobody has yet found an easy way to “print up” gold.

Posted by: JC on May 9, 2005 5:23 PM | Permalink | Reply to this

Re: A Thin Veneer

I don’t think it’s true that in places like China, Taiwan and India… people only consider gold the real currency. In these areas, paper currency has been used for a real long long time in history. As for the chinese currency, it pegs to the dollar at least for now.

Posted by: bigbang on May 10, 2005 12:19 AM | Permalink | Reply to this

Re: A Thin Veneer

Awhile ago China lifted its ban on individuals owning gold there

http://www.chinadaily.com.cn/en/doc/2003-09/25/content_267390.htm

http://www.chinadaily.com.cn/english/doc/2004-12/02/content_396688.htm

What’s interesting is that recently a lot of folks in China have been dumping all their American dollars, in favor of the Chinese Yuan currency. With the value of the American dollar falling over the last several years, they certainly don’t want to be holding it anymore. It’s ironic that they consider the Chinese Yuan to be a “hard” currency these days, considering it was a very unreliable currency for many decades previously. Many folks think that once the Yuan gets unpegged and starts to float, its value will go up.

Posted by: JC on May 10, 2005 2:25 AM | Permalink | Reply to this
Read the post My father survived the Holocaust
Weblog: screaming penguin
Excerpt: My father survived the Holocaust under rather unusual circumstances1. Growing up, as the child of a . . .
Tracked: May 11, 2005 8:44 AM

Re: A Thin Veneer

Some said:
“It’s ironic that they consider the Chinese Yuan to be a “hard” currency these days, considering it was a very unreliable currency for many decades previously. Many folks think that once the Yuan gets unpegged and starts to float, its value will go up.”

What makes you believe Yuan was unreliable for several decades previously? The fact is exactly to the opposite. Prior to Deng’s reform, which started in 1979, China has a fixed pricing system where the government has a tight control on prices of goods. The prices are essentially fixed for decades without any fluctuation at all. In that sense Yuan was very reliable. Too reliable I would say.

For example, cane sugars was sold at that time for 14.7 cents (of Yuan) per half kilogram. The official conversion rate to US dollar was about 2 Yuan for one dollar, although US dollar was un-accessible to people. So that’s 7 US cents per half kilogram of cane sugar. You pay the same price 10 years ago or 10 years later. It was fixed.

Bus rides costed 2 cents (Yuan) per stop at that time. Going from point A to point B costs 1 dime if there was 5 stops. Each stop is approximately half a mile between each other. And it was also fixed for a long long time. Today, it’s more likely one Yuan per ride, regardless of the number of stops.

Ice cones that vendors sold on streets in the summer costed 3 cents each. Incredible, right. Same thing costs about a few dollars per box of 6 or 12 hear in America. I really missed the era when ice cones were 3 cents. You could buy 200 or 300 of them with just one dollar, using today’s conversion rate and the price 20 years ago :-)

Quantoken

Posted by: quantoken on May 13, 2005 9:58 AM | Permalink | Reply to this

Re: A Thin Veneer

A more accurate “value” of a currency, is what it is fetching on the black market. The government can always cheat in their “official” exchange rates. Government decreed “fixed prices” rarely ever reflect the true free market prices.

With the Chinese Yaun pegged to the American dollar at an official rate of around 8.3 Yuans to one American dollar, the black market rate was easily 10 Yuans to one American dollar, or sometimes even more, during the 1990’s. At least this is what many Chinese expatriates have mentioned over to me the years.

When a currency is freely convertible and traded easily on the international currency exchange markets, the “black market” rate becomes literally equal to the free market exchange rate for legal transactions. The black market exchange rate will deviate significantly from the free market exchange rate, for illegal activities like money laundering, drug money, Mafioso blood money, etc … This is why whenever the US Treasury changes the design of the dollar bills, black marketeers will demand payment in the “new dollar bills” and will frequently not accept the “old dollar bills” as payment. If they do accept the “old dollar bills” as payment, the cost of the black market merchandise in “old dollar bills” will be significantly higher than the cost in “new dollar bills”. In the ordinary market of legal transations, the “old dollar bills” have the same nominal value as the “new dollar bills”.

Posted by: JC on May 13, 2005 6:12 PM | Permalink | Reply to this

Re: A Thin Veneer

JC said:
“A more accurate “value” of a currency, is what it is fetching on the black market. The government can always cheat in their “official” exchange rates. Government decreed “fixed prices” rarely ever reflect the true free market prices.

With the Chinese Yaun pegged to the American dollar at an official rate of around 8.3 Yuans to one American dollar, the black market rate was easily 10 Yuans to one American dollar, or sometimes even more, during the 1990’s. At least this is what many Chinese expatriates have mentioned over to me the years.”

Not true. It’s exactly the opposite. It did happen that the black market value of dollar was higher than the official rate. But it is clearly not a true value because it was NOT a free market value.

I say it again: BLACK market is NOT the FREE market. It’s the opposite. Once you have a free market, the black market disappears. When you do NOT have a free market, that’s when the black market shows up. And it was clearly due to government control.

Think about it, if you have dollars, you can go to a bank and convert it to RMB. But you can NOT do the same and go to bank and convert RMB to US dollars. Basically the government shuts off all access to US dollars. For most people the only way to acquire dollars was through black market. It’s a supply and demand thing and that’s why US dollar was valued higher in the black market.

Certainly things are very very different in China nowadays. It is still hard to acquire US dollars from banks, but not that hard any more if you have legitimate reasons and if the amount is a small quantity. And the black market is all but gone now.

Quantoken

Posted by: Quantoken on May 13, 2005 8:59 PM | Permalink | Reply to this

Re: A Thin Veneer

Quantoken,

Before I speak any further, I want to know exactly what are your precise definitions of “black market” and “free market”.

Posted by: JC on May 13, 2005 10:49 PM | Permalink | Reply to this

Re: A Thin Veneer

It’s the sad inheritance of our ancestors.
My grandfather take part in WWII for USSR. His stories are really scary.

Posted by: Frank S on December 11, 2005 2:52 PM | Permalink | Reply to this

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