Got Gold?

Just forty years ago in 1971, one ounce of gold would buy 35 US dollars.   Twenty years ago in 1991, one ounce of gold could be exchanged for 350 US dollars.   Today, that same ounce of gold will buy you more than 1500 US dollars.  $1508 to be exact.

From $35 to $1500 in forty years.  That’s what inflation does.   It’s easy to demonstrate that this is a monetary phenomenon, not simply a spike in the price of gold, because other commodities have also gone way up in price since Nixon removed us from the gold standard (then tried wage and price controls to “fix” the problem that he caused) – although other commodities didn’t increase to the same extent. A few examples:

1971 2011 % Change
Gold (oz) $35 $1,508 4308.57%
Silver (oz) $1.55 $47.25 3048.39%
Wheat (Bu) $1.34 $9.32 695.52%
Soybeans (Bu) $3.03 $13.82 456.11%
Copper (lb) $0.51 $4.37 856.86%
Aluminum (lb) $0.26 $1.19 457.69%
Oil (barrel) $3.60 $112.00 3111.11%
DJIA 890 12,505 1405.06%
S&P 500 94 1,337 1418.57%
Official CPI (US Dollar) $1.00 $5.52 552.00%
Money Supply (Billions) $684 $8,980 1313.37%

Go ahead and look up the price of your favorite item – something tangible.  Coal. Iron. Steel.  Rubber.  Some “thing” that you can grab with your hand.  It will cost more – much more – today than it did in 1971 when we went off of the gold standard.

I’ll grant that there are some things that have gotten cheaper, as manufacturing processes, techniques, and technology in general have advanced and/or become more efficient.  For example, no amount of gold or dollars in 1971 could have purchased a smartphone or laptop computer.   No amount of money could buy a car with airbags or anti-lock brakes in 1971.

For that matter, even things we consider “old” technology wasn’t available – at any cost – in 1971.  USB drives.  Flash memory.  CD’s and DVD’s.  MP3 – what?  Programmable thermostats.  Doppler radar.  Digital cameras.  Camcorders.  And literally thousands of other things that we take for granted didn’t exist – or were only for the superwealthy, corporations, or government – in 1971.

Just think how cheap they’d be without 553% inflation….

Gee, thanks Federal Reserve.  You managed to destroy the worlds most valuable currency in just 40 years.   Thanks to your boneheaded policies – and the willingness of the American public to go along for the ride – the US is well on the way to bankruptcy.

I don’t think we’ll ever officially declare bankruptcy – that would be honest – but I’m guessing we’ll continue to inflate away the value of the dollar until it’s a fait accompli.

Got gold?

Shit – that reminds me.   I often hear professional advisors discouraging people from investing in gold or silver.  Know why?  Cause they don’t get a commission if you buy a gold or silver coin at a pawn shop or on eBay.  “It doesn’t pay a dividend” is another common one.  Who cares?  Look at the chart above.  The fact is that nothing has gained more in value – since we went off the gold standard – than gold.

Maybe we should’ve stayed on the gold standard?  🙂

BTW – Look at how things that you thought were “real”  investments like the DJIA and S&P 500 have basically only kept pace with the expansion in the money supply.  That’s not an investment – that’s simply treading water.

Another BTW – The money supply numbers are straight from the Fed – at least until they quit tracking M3 in 2006.  The 2006 number is shown.  Just imagine what the number would be today after QE 1 and QE 2.  I’m guessing double, but that’s just a guess.

gk

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