The value of paper money is decreasing but gold and silver retain their purchasing power
Reading time: 2,554 words, 6 to 10 minutes
We hear a lot of people complaining about gas (petrol) increasing in price. That’s not true. Gas has been going down in price for almost century.
What? Am I on drugs? No, it’s ok, I’m not imagining this. It’s for real and the explanation is illustrative of the devaluation of our currency. I’ve mentioned this before but it’s time to revisit this because it will affect your future and the decisions you make.
I have a 1951 silver dollar I hang onto as a keepsake and to remind me how ancient I am because that’s the year I was born. It weighs roughly an ounce. A silver dollar’s silver content and weight varies somewhat depending on the date and type (Morgan, Liberty, Canadian, etc.). However, for the sake of this illustration, let’s assume an old silver dollar has roughly an ounce of silver in it.
When I was born, gas cost between 20¢ and 25¢ a gallon (this was before Canada and a few other nations went metric). Back then, a silver dollar could buy between 4 and 5 gallons of gas. Today, a one ounce silver coin, worth about $35 can buy 6.5 gallons in Canada and more than 8.75 gallons in the U.S. In other words, an ounce of silver today will buy between 30% and 75% more gas than it did in in the early 1950s’.
Therefore, the price of gas is going down when measured in precious metals like gold and silver. It only appears to be going up when measured in paper (fiat) currency. That’s because the value (purchasing power) of paper money is going down so it takes more paper money to buy gas.
Gold and silver are money. Gold and silver retain their purchasing power over centuries and millennia. On the other hand, paper currency is ass-wipe. Hold a $20 dollar bill in your hands and you’re holding about 3¢ worth of paper and ink.
Some people still think that paper currency is backed by gold. It’s not. Most of the world went off the gold standard in the 1930s and convertibility from currency into gold ended in the 1970s. Most people don’t know that so they think currency is still backed by gold.
Our money once stated, “Payable to bearer on demand”. This meant whoever had the paper money could exchange it for the gold that was backing it. Today, money says, “This note is legal tender” which means whoever has the paper money can exchange it for another piece of ass-wipe.
Paper currency is backed by the full faith and credit of politicians. If that doesn’t scare the crap out of you, I don’t know what will. Politicians are liars and scoundrels (I hope you were sitting down when you read that). Politicians promise you anything and everything to get elected and re-elected. Their only goal is to serve those who fund their election campaigns and to remain in power long enough to collect fat pensions. They do that by telling us convincing lies.
We, the people are so stupid we keep electing liars and scoundrels. We do this for several reasons:
1) We’re stupid.
2) We want to believe their lies.
3) Politics attracts convincing sociopathic liars.
4) We have little choice between one sociopathic liar and another.
5) Honorable, decent politicians don’t get elected because they don’t lie.
6) We’re stupid because we don’t want to hear the truth which brings us back to # 1.
7) Rinse, repeat.
I know this sounds cynical but there are two things to keep in mind. First, some countries are worse than others. The U.S. is rapidly becoming more corrupt. The rot set in a long time ago but it is increasing exponentially and a lot more people realize it. Other countries such as Australia, New Zealand, Canada, Singapore and others still retain a semblance of civility and a somewhat honorable political class. How long that continues remains to be seen.
Second, sociopaths are difficult to detect especially for decent people (80%; the Pareto Principle) who tend to assume everyone else is also decent. Doug Casey, writing in “The Ascendance of Sociopaths in US Governance” offers an interesting layman’s definition and in Part 2 “Sociopathy Is Running the US – Part Two”
“There are seven characteristics I can think of that define a sociopath, although I’m sure the list could be extended.
1. Sociopaths completely lack a conscience or any capacity for real regret about hurting people. Although they pretend the opposite.
2. Sociopaths put their own desires and wants on a totally different level from those of other people. Their wants are incommensurate. They truly believe their ends justify their means. Although they pretend the opposite.
3. Sociopaths consider themselves superior to everyone else, because they aren’t burdened by the emotions and ethics others have – they’re above all that. They’re arrogant. Although they pretend the opposite.
4. Sociopaths never accept the slightest responsibility for anything that goes wrong, even though they’re responsible for almost everything that goes wrong. You’ll never hear a sincere apology from them.
5. Sociopaths have a lopsided notion of property rights. What’s theirs is theirs, and what’s yours is theirs too. They therefore defend currency inflation and taxation as good things.
6. Sociopaths usually pick the wrong target to attack. If they lose their wallet, they kick the dog. If 16 Saudis fly planes into buildings, they attack Afghanistan.
7. Sociopaths traffic in disturbing news, they love to pass on destructive rumors and they’ll falsify information to damage others.
“The fact that they’re chronic, extremely convincing and even enthusiastic liars, who often believe their own lies, means they aren’t easy to spot, because normal people naturally assume another person is telling the truth. They rarely have handlebar mustaches or chortle like Snidely Whiplash. Instead, they cultivate a social veneer or a mask of sanity that diverts suspicion. You can rely on them to be “politically correct” in public. How could a congressman or senator who avidly supports charities possibly be a bad guy? They’re expert at using facades to disguise reality, and they feel no guilt about it.”
The U.S. is still the most powerful country in the world in terms of its economy and military, and the U.S. dollar is still the world’s reserve currency and will be for a long time yet. Therefore, the rot in U.S. politics will affect the entire world to one degree or another. The global economic slowdown is evident. The central banks of China, India and Brazil have all recently lowered their key interest rates in a desperate attempt to cushion their slowdown.
In spite of creating trillions of dollars out of thin air, governments have not solved any of the structural problems that caused economies to begin collapsing. Look at the chart below to see the increase in the U.S. Federal debt. The chart has gone exponential. That which cannot go up forever, won’t.
Casey also says, “The US is already in a truly major depression and on the edge of financial chaos and a currency meltdown. The sociopaths in government will react by redoubling the pace toward a police state domestically and starting a major war abroad. To me, this is completely predictable. It’s what sociopaths do.”
You can’t stop the inevitable but one thing you can do is manage the people you associate with. Try to deal with like-minded, decent people. Not only will they be able to help you through difficult times but psychologically they will give you a more affirmative outlook. You’ll be able to help each other maintain an even keel.
Another thing I’ve been harping on in previous articles is paying off your debts. Pay them down, pay them off and stay out of debt as much as possible. You do NOT necessarily have to pay off the mortgage as soon as possible as long as your income can comfortably carry it. Available cash may have better uses.
Avoid savings accounts. The interest earned is less than the REAL rate of inflation so money in the bank is losing its purchasing power. Don’t forget that the government sociopaths are lying about the real rate of inflation. In the U.S. the official rate is about 2%. However, John Williams of Shadow Government Statistics calculates the real rate at 10.3%. Money in the bank is losing about 8% a year in purchasing power.
Also, avoid conventional investments such stocks, bonds and real estate. Right now the stock markets, especially American, are artificially pumped up by the banksters with their high frequency algorithm programs and fraudulent front-running. There’s little real volume so volatility could set the stage for the next big crash.
Bonds are nearing the end of their life cycle. Governments are trying to keep interest rates low but once they lose control (who knows when?) the value of bonds will plummet as interest rates rise.
Real estate is bottom bouncing in the U.S., falling in Australia, Europe and China, and it’s in bubble territory elsewhere like Canada. If you own real estate, heed the words of an honest agent: real estate is a roof over your head, a lifestyle choice not an investment like it was for your parents or grandparents.
Boomers will be cashing out of their homes as they retire. This will keep prices low for the next twenty years because there are a lot of boomers and too few young people with decent jobs that can afford to buy the increasing inventory of homes.
In the U.S. the settlement of the robo-signing foreclosure fraud with a slap on the wrist for the banksters means they will start foreclosing with renewed vigor. This will have two major consequences. First it will increase the glut of homes on the market which will keep prices down. Second, many homeowners have avoided mortgage payments for the last two or three years. This will come to an end as they’re evicted and the money they’ve been spending on consumer goods will now go toward rent and will further dampen economic growth.
Speaking of economic growth: the forecast for Canada and the U.S. was 3% annual growth, and then revised to 2.5% and now maybe, a paltry 1.5%. Factor in the “official” rate of inflation and economies world-wide are shrinking. Factor in the REAL rate of inflation and economies world-wide are in a death spiral.
Recovery? What Recovery?
The World Trade Organization has revised its forecast of global trade growth from 5% to 3.7% which is significantly lower than the long term average of 5.4%. The chart below shows the Suez Canal traffic nose-diving again (blue line) along with global GDP (gold line).
Although only about 8% of world trade transits the Suez, it’s a pretty good leading indicator of where the global economy is heading.
Poor people are going to get poorer world-wide. The middle class will see their standard of living decline for a long time. People with some wealth and available cash should put some (not all) of their cash into gold and silver. Avoid bullion bars unless you’re very wealthy. You’ll pay a slightly higher premium for coins but they have the advantage of portability and will serve as money when times get really tough and our ass-wipe currency inevitably collapses.
Gold and silver have pulled back from their highs of last year providing a buying opportunity. We’ll see prices begin rising before the end of the year. Someday we’ll look back and consider today’s prices very cheap. We’ll wish we had bought more.
Gold and silver are not an investment. They are money. They always have been and always will be money. You don’t invest in money but you can transfer some of your paper currency into gold and silver so they’ll retain their purchasing power.
It’s been said that gold and silver have no yield i.e. they don’t earn interest or dividends. That’s true, but it’s beside the point. Gold and silver have no yield because they have no risk. They have no currency risk, no monetary risk. The only risk is loss or robbery.
Gold and silver are volatile (extreme price swings) and their volatility will increase as global financial systems tear themselves apart and governments desperately try to paper over the damage with monetary Band-Aids. Forget the day to day volatility and look at the long term when owning gold and silver. Don’t panic and sell. Buy more when prices are down.
In the days of the Old Testament King Nebuchadnezzar of Babylon, a once ounce gold coin could buy 350 loaves of bread. Back then bread was nutritious multi-grain, considered the “staff of life” and weighed roughly a kilogram. Today, I bought a 750 gram loaf of “Rye Plus” made with whole rye, water, unbleached wheat, yeast and salt. It cost $3.59. The equivalent one kilo loaf would be $4.79. Today, the price of gold is $1642 an ounce. Today, 2,600 years after Nebuchadnezzar a one ounce gold coin can buy 342 loaves of bread. Do you see how well precious metals retain their value over time?
Available cash should also be considered for the inevitable bargains that will become available. During the last Great Depression, cash was king and those with cash bought assets at 10¢ on the dollar. Whether it be bicycles or farmland, patience will reward those with cash.
Those with greater wealth, especially if you’re American would do well to diversify overseas. It’s no wonder the number of Americans expatriating and renouncing their U.S. citizenship is increasing yearly. Patriotism is for good times. In tough times you need to get out of Dodge for reasons of safety and to avoid paying U.S. tax on overseas income and investments.
Available cash should also be put into durable goods that you’ll inevitably need in the future. This has been discussed before in great length so I won’t keep repeating myself. Stuff is cheap right now because the economy is still deflating as consumers and government deleverage debt (pay it down) but the tremendous amount of money that’s being printed out of thin air will produce inflation someday. Buy durable stuff now while it’s cheap.
Casey’s article reminded me that H.L. Mencken journalist, editor and acerbic wit was wise enough to keep his mouth shut during both World Wars.
We are witnessing the decline of Western Civilization, the decline of civility, an increase in partisanship and class hatred. As Gerald Celente says, “When people have nothing left to lose, they lose it.” The time will come when you will also be wise to remain silent.
I carefully manage this blog’s readership. I’m not interested in increasing traffic and high volume. I avoid SEO (Search Engine Optimization) techniques. I avoid attracting undue attention by using fake words like USrael. I write long articles, use big words, boring graphs and charts to avoid the mouth-breathers. However, the time will come when I, too, will shut up and shut down this blog for safety reasons.
In the meantime, learn while you can.
And, don’t complain about the price of gas. Priced in real money, it’s cheap.
April 21, 2012
Your comments are WELCOME!
If you like what you’ve read (or not) please “Rate This” below.
Lengthy comments may time-out before you’re finished so consider doing them in a word doc first then copy and paste to “Leave a Reply” below