“No state shall coin money; emit bills of credit; make any thing but gold and silver coin a tender in payment of debts.” Article 1, Section 10, Clause 1 United States
Welcome to the Golden Sense! I apologize for the long delay between blogs. I spent some time traveling in the Texas hill country with Rebecca and finishing up an important investment class. Ahh....that's no excuse, right Todd?
So where are we now? Sometimes its best to look at things from a different perspective to understand the questions of today.
Most everyone would notice a couple changes going on in the world. Lots of people ask me questions.
Why is food getting so expensive?
Why is gas $4 a gallon?
Do you invest in silver? Whats with all the headlines? I hear the price almost hit an all time high?!
Todd! I can't afford this lifestyle. Do I need to switch back to white wonder bread?
Is it worth driving around town to find the cheapest gas?
Why is food getting so expensive?
Why is gas $4 a gallon?
Do you invest in silver? Whats with all the headlines? I hear the price almost hit an all time high?!
Todd! I can't afford this lifestyle. Do I need to switch back to white wonder bread?
Is it worth driving around town to find the cheapest gas?
So what is the deal with prices? The reality of the situation is that gas and bread are actually losing value!
As I see it, there are TWO trends contradicting each other right now. First, products are in a natural price decline due to overproduction and enhanced distribution methods. The second trend is contradicting. Prices in terms of US dollars are going up due to the creation of more dollars (aka: Federal Reserve Notes).
Are you losing it Todd? What do you mean? Things are losing value yet the prices are going up? That does not make sense.
What we need to look at is how we value products. If you price products in US dollars then the price is definitely going up. If you have bought anything lately...you will probably notice that the prices are higher than a decade ago.
Please remember, the US dollar used to be backed by gold and silver. If this was still the case, we might find ourselves in a different situation.
Why do I mention silver? Because for long periods of time silver has been used as money. It was also used as a price indicator for paper money.
Nobel Laureate Milton Friedman once said, "The major monetary metal in history is silver, not gold."
As Friedman states, silver has a long history. After the revolutionary war in 1776 the
Silver was once the basis of
You see...silver has a big history for being money.
So the question is: What happens if we price our products such as gasoline and bread in terms of one ounce of silver?
The chart below shows the price of gas and bread over the last 56 years. As you will notice, the price of both gas and bread are actually decreasing when compared to one ounce of silver. The chart shows the average price of gas, bread and silver for a given year. This April, the price of silver was $40 an ounce. The bottom box indicates that in April 2011 the ratio of gas and bread compared to silver has hit an extreme low.
Year | Gas price in one ounce of silver | Bread price in one ounce of silver |
1955 | 0.355 | 0.2 |
1974 | 0.125 | 0.07 |
2000 | 0.25 | 0.35 |
2011 | 0.10 | 0.06 |
Question: Wait a second Todd, doesn't the price of silver change rapidly?
Answer: Yes it does. However, when you look at the price ratios over fifty years, then trends can be identified such as the declining value of bread and gas when compared to one ounce of silver.
The box below shows the calculations for how I arrived at the above results.
| Year | Average Silver price per ounce | Average gas price | Gas price in one ounce of silver | Average bread price | Bread Price in one ounce of Silver |
| 1955 | $0.9 | $0.32 | .32/.9=0.355 | $0.18 | .18/.9=.2 |
| 1974 | $4.3 | $0.55 | .55/4.3=.125 | $0.28 | .28/4.39=.07 |
| 2000 | $4.95 | $1.26 | 1.26/4.95=.25 | $1.72 | 1.72/4.95=.35 |
| 2011 | $40 | $4 | 4/40=.10 | $2.28 | 2.28/40=.06 |
So for 56 years the price of gas and bread should be becoming more affordable if silver was used as the basis for our currency. The US Government is actually required by the US Constitution to have a monetary system based on gold or silver. However, they currently back our money with neither.
How is it that bread and gas prices are declining when compared to a historical money standard such as silver?
We live in the changing world of globalization. China, India and Brazil are becoming major players in the world economy. What we are seeing is an increase in production (increase supply) that is outpacing consumption (demand). The more you create of one product, the price tends to go down. Products such as bread are actually becoming readily available to people. Shipping and distribution of oil has become more cost effective. This creates a natural downward pressure on prices.
There is an international over-production of merchandise and goods due to the entrance of China and Asia into world markets. These are all export-dependent countries, and they are eager to sell their goods to the so-called developed nations. The ironic fact is that the world simply can't use or digest all the goods that are being created. The net result is worldwide deflationary pressures. This is why you see the price of gas and bread declining in relation to a historical standard such as silver.
But wait Todd, all I see is the price (in US Dollars) going up!
Answer: Yes, that is the point. We struggle every week trying to make enough money to go to the store or fill up our cars with gas.
"Got a quarter tank of gas in my new E Class!" Hey the Big Tymers rapped it. Not me.
Our hardship with rising prices is not due to the weather, farmers, big oil companies, or price gougers. The problem lies in what we use to pay for these products. We currently use U.S. dollars (actually they are called Federal Reserve notes).
The responsibility for rising prices clearly falls on the value of U.S. dollars, not the products we buy. The group that issues US Dollars is the Federal Reserve. They control the money supply and it is the Federal Reserve and the Government of the United States that have backed the U.S. dollar by no fixed standard. Money is being created rapidly and actually masking the stealth trend of price deflation (decreasing prices).
One thing is certain -- if you continue to create ever-more of a specific item, at some point the price or the demand for that item must decline. This is what has been happening to the US dollar. As the purchasing power of the dollar declines, rising prices are the result. It takes an increasing number of dollars to buy "things." So far, the items that are inflating in costs are food and energy. Ironically, these are the two items that have been removed from the government's "core inflation" index. So as far as the Fed (Federal Reserve) is concerned, there is no inflation. As far as the Fed sees it, they can continue their "printing" operation with impunity. (Russell)
Imagine two muscle men pulling at the opposite ends of a rope. On one end it is the pull of a natural price decline and on the other it's the Federal Reserve's massive increases in the money supply. You ask, who is going to win?
In the big picture, the fundamental deflationary forces are more powerful than the activities of the Fed.
In any case, do Americans deserve these rising prices? Certainly the young adults (us) of America are confronted with a tough challenge. Unemployment is high and now our cheeseburgers and petrol are burning a hole in our pocket.
Americans could be gaining or sustaining purchasing power if the government followed the U.S. Constitution (the highest law of the land). Yet we are stuck everyday sippin $2 coffee, munchin a $3 roll and watchin the gas pump ding us at $4 a gallon.
You know what? Maybe those guys in the 1770's were on to something?
Signing out,
T. Norman
Is Katy Perry serious? Rebecca and I just can't figure it out. Is she the case of a sheltered religious girl rebelling through music? Or does she really think her music is an artistic statement? Maybe its a combination of the both? You know, who cares? When you're selling out concerts and you are on the cover of Elle....it just doesn't matter where you came from.
Congratulations to Manchester United of England. They just won their all time record breaking 19th title. Liverpool held the record at 18 league titles. The manager of Manchester United (Sir Alex Ferguson) is one of the greatest sports managers of all time winning 47 trophies. He has been a man on a mission for many years:
"My greatest challenge is not what's happening at the moment, my greatest challenge
was knocking Liverpool right off their fucking perch! And you can print that." Sir Alex Ferguson
It appears that lower state street in Santa Barbara is getting a face lift. A new hotel is being put in along with some new restaurants. Hopefully it works out for them. In my mind it's prime real estate next to the ocean.
Much going on out there. Money, Competition, fame.
"Who is to bless, and who's to blame?" Kris Kristofferson.
References
Russell, Richards, The Dow Theory Letters. 2011
The People's History of the United States
