What Has Government Done to Our Money?


Francisco Ferrer

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1914 one ounce of gold buys a Colt 1911 .45 caliber handgun

2014 one ounce of gold buys a Colt 1911 .45 caliber handgun

In one hundred years there has been almost no variation in the value relationship between those two commodities.

The only variable has been the value of the dollar that buys them.

It only matters what you do with your money. :wink:

Greg

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Yeahbut people have more $1.00 in their wallet than they used to.

Do a similar analysis on what one hour of labor (at the average wage) will buy Then and New. The government cannot print or manufacture time. An hour is an hour and the market determines the wages.

Ba'al Chatzaf

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In most cases (all but silver and movies, I'd estimate) you get a better product today.

I don't know.. maybe in many cases you get a better product but there are several things today are made of less sturdy materials so that they don't last as long even if they are lighter.

Also many things in the past were made by hand, which I will admit did introduce mistakes, but arguably should have been worth/valued more than the conveyor belt products of today.

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Some animals are more equal than others under inflation.

From "Inflation and You" by Ludwig von Mises:

The most fateful results of inflation derive from the fact that the rise of prices and wages which it causes occurs at different times and in a different measure for various kinds of commodities and labor. Some classes of prices and wages rise more quickly and rise higher than others. Not merely inflation itself, but its unevenness, works havoc.

While inflation is under way, some people enjoy the benefit of higher prices for the goods or services they sell, while the prices for goods and services they buy have not yet risen or have not risen to the same extent. These people profit from their fortunate position. Inflation seems to them "good business," a "boom." But their gains are always derived from the losses of other sections of the population. The losers are those in the unhappy situation of selling services or commodities whose prices have not yet risen to the same degree as have prices of the things they buy for daily consumption.

These victims, by and large, are the same kind of people, roughly, the middle classes, who are injured as creditors through the depreciation of their bank savings, insurance policies, pensions, etc. The salaries of teachers and ministers, the fees of doctors, go up only slowly as compared to the tempo with which prices of food, rent, clothing, and so on, go up. There is always a considerable time lag between the increase in the money income of the white-collar workers and professional people and the increase in costs of food, clothing, and other necessities.

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Some animals are more equal than others under inflation.

From "Inflation and You" by Ludwig von Mises:

The most fateful results of inflation derive from the fact that the rise of prices and wages which it causes occurs at different times and in a different measure for various kinds of commodities and labor. Some classes of prices and wages rise more quickly and rise higher than others. Not merely inflation itself, but its unevenness, works havoc.

In the long run it all evens out like the "gold to gun ratio" has for a century. Financial reserves and avoiding debt both address the inequities in the speed of inflation to smooth out the lumps and bumps of booms and busts. And as long as you are a Capitalist producer of goods and/or services, the free market will offer you plenty of leeway as the dollar denominated cost of your goods and services always eventually goes up right along with the cost of everything else.
Remember...
It's not the cost of things going up.
It's the value of the dollar going down.

While inflation is under way, some people enjoy the benefit of higher prices for the goods or services they sell, while the prices for goods and services they buy have not yet risen or have not risen to the same extent. These people profit from their fortunate position. Inflation seems to them "good business," a "boom." But their gains are always derived from the losses of other sections of the population. The losers are those in the unhappy situation of selling services or commodities whose prices have not yet risen to the same degree as have prices of the things they buy for daily consumption.

That's why it's wise to choose deal in the practical useful necessities of living rather than the frivolous discretionary spending stuff. It's impossible to fall when you're already close to the ground.

These victims, by and large, are the same kind of people, roughly, the middle classes, who are injured as creditors through the depreciation of their bank savings, insurance policies, pensions, etc. The salaries of teachers and ministers, the fees of doctors, go up only slowly as compared to the tempo with which prices of food, rent, clothing, and so on, go up. There is always a considerable time lag between the increase in the money income of the white-collar workers and professional people and the increase in costs of food, clothing, and other necessities.

Ludwig just offered a good reason not to put money in a bank, or spend money on insurance policies, or be insolvent and dependent on a pension. Choosing the no education, no degree, independent blue collar business entrepreneur path instead of the white collar, student loan, college degree, professional employee path makes the necessities of life produced just another one of the "so on's" that go up first.

For every single point of being a victim... there is something which can actually be done to resolve it.

Greg

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Additionally, where you live will affect how much or what you can buy.

Recently read (don't remember the source, perhaps WSJ or Barrons) New York & California's cost of living (utilities, food, gas, housing, taxes, etc.) amounts to 31% higher than Nevada, Utah & Arizona.

If true, that's not chickenfeed.

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In most cases (all but silver and movies, I'd estimate) you get a better product today.

Nah. Avatar and Avengers top any of the earlier flicks.

Gotta agree on that one!

You old guys can have your Gone With the Wind :smile:

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The most fateful results of inflation derive from the fact that the rise of prices and wages which it causes occurs at different times and in a different measure for various kinds of commodities and labor. Some classes of prices and wages rise more quickly and rise higher than others. Not merely inflation itself, but its unevenness, works havoc. While inflation is under way, some people enjoy the benefit of higher prices for the goods or services they sell, while the prices for goods and services they buy have not yet risen or have not risen to the same extent. These people profit from their fortunate position. Inflation seems to them "good business," a "boom." But their gains are always derived from the losses of other sections of the population. The losers are those in the unhappy situation of selling services or commodities whose prices have not yet risen to the same degree as have prices of the things they buy for daily consumption. These victims, by and large, are the same kind of people, roughly, the middle classes, who are injured as creditors through the depreciation of their bank savings, insurance policies, pensions, etc. The salaries of teachers and ministers, the fees of doctors, go up only slowly as compared to the tempo with which prices of food, rent, clothing, and so on, go up. There is always a considerable time lag between the increase in the money income of the white-collar workers and professional people and the increase in costs of food, clothing, and other necessities.

And? You could say the same thing about any kind of price change.
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@Francisco Ferrer

No, because price changes in the free market are the product of the interplay of supply and demand.
This is false (in fact, I think it borders on nonsense), for a lot of very complicated reasons.Anyway, your quote said:
There is always a considerable time lag between the increase in the money income of the white-collar workers and professional people and the increase in costs of food, clothing, and other necessities.
I don't see why this would be any less true of any kind of change in prices that doesn't result from inflation.
Inflation, on the other hand, is an artificial, government-engineered increase in money supply to finance deficit spending and other government objectives.
I don't think you understand inflation. It is the result of an increase in the money supply relative to the goods and services in the economy regardless of whether that increase is caused by government or the result of a trade surplus.
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@Francisco Ferrer

No, because price changes in the free market are the product of the interplay of supply and demand.
This is false (in fact, I think it borders on nonsense), for a lot of very complicated reasons. Anyway, your quote said:
There is always a considerable time lag between the increase in the money income of the white-collar workers and professional people and the increase in costs of food, clothing, and other necessities.
I don't see why this would be any less true of any kind of change in prices that doesn't result from inflation.
Inflation, on the other hand, is an artificial, government-engineered increase in money supply to finance deficit spending and other government objectives.
I don't think you understand inflation. It is the result of an increase in the money supply relative to the goods and services in the economy regardless of whether that increase is caused by government or the result of a trade surplus.

Inflation is how you define it then seek corresponding data to prove it. The data seem to support the idea that the 1912 dollar would have fifty times more purchasing power than today's. But the purchase of what?

If you want to save and increase your wealth you might try 5-10% physical gold, a low cost mutual fund of the S & P 500, real estate here and abroad, etc. Since the mutual fund constantly kicks companies out and brings new ones in you need not worry too much about its value the rest of the century even if the dollar literally disappears.

--Brant

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I pulled the trigger on 20% allocation to physical PM today, willing to go another 20% if it goes lower.

Anything more and you expect Armageddon. Gold is not an investment. It's insurance. The downside price is 1000. If you expect that price to be investible then you will sell what you buy at that price after modest appreciation. But what price would that be? That's because an investment is not insurance. The downside price of silver is 10-12 a troy ounce. There is much more possible upside to the gold from 1000 than silver at 10, but this presupposes the buck disappearing in a wave of hyperinflation. Ain't going to happen. That's why I will buy silver at 10-12. It can snap back much more than gold, but I will buy it through silver royalty companies which I will later sell. The next five years are deflationary as debt instruments are paid off. The money being created as debt through monetization is a fraction of the money historically created through fractional reserve banking. Velocity is poor and velocity is the key to general price inflation.

--Brant

don't worry about federal debt; it will be continually rolled over (worry if the feds have debt in yen, sterling, euros or any other currency than the dollar--but that would be a depressionary-deflationary worry as would the reduction of the federal debt denominated in dollars)

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Gold is not an investment. It's insurance.

Spot on, Brant.

Among other equities in addition to metals and stocks, debt free real estate is an especially useful and currency proof store of wealth because you can live in a home and grow food on the land.

I couldn't care less what the Federal Reserve or the government does to the money supply.

No matter which way things go, I'm covered. :smile:

Greg

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don't worry about federal debt

 

That's what Milton Friedman said to me in a letter in 1988, back in the day when people still wrote letters.  OF-04.JPG

$1 of 1988 USD would be worth: $0.50 in 2014

$1 of 1988 gold would be worth: $3.00

$1 of 1988 WTI oil in storage:    $10.00

 

...of course you're right about stocks

$1 invested in S&P 500 in 1988:  $7.40 in 2014

$1 invested in BRKA in 1990:     $29.44

$1 invested in AAPL in 1994:   $266.00  (plus dividends)

 

Personally, I think it's time to take some money off the table

 

junk-bonds8-14.PNG
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These are examples of "You can prove anything with statistics," Wolf. The only datum that matters respecting inflation is the 50% depreciation of the dollar and is the only price rationally, although conditionally, extrapolatable to the 25 year-from-now future. Federal debt will eventually matter when it comes to inflation, but the lag time can be decades as it has been with the Japanese yen.

To preserve wealth requires a variety of instruments. To acquire wealth is the same as it has always been: produce something. To increase wealth, invest in something(s).

--Brant

did I mention thievery? (just a little side action I may have [or may not have] going--heh, heh, heh!)

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@Francisco Ferrer

No, because price changes in the free market are the product of the interplay of supply and demand.
This is false (in fact, I think it borders on nonsense), for a lot of very complicated reasons. Anyway, your quote said:
There is always a considerable time lag between the increase in the money income of the white-collar workers and professional people and the increase in costs of food, clothing, and other necessities.
I don't see why this would be any less true of any kind of change in prices that doesn't result from inflation.
Inflation, on the other hand, is an artificial, government-engineered increase in money supply to finance deficit spending and other government objectives.
I don't think you understand inflation. It is the result of an increase in the money supply relative to the goods and services in the economy regardless of whether that increase is caused by government or the result of a trade surplus.

When I say "inflation" I specifically mean an increase in the money supply which has a tendency to raise prices in general. Henry Hazlitt wrote:

When the supply of money is increased, people have more money to offer for goods. If the supply of goods does not increase — or does not increase as much as the supply of money — then the prices of goods will go up. Each individual dollar becomes less valuable because there are more dollars. Therefore more of them will be offered against, say, a pair of shoes or a hundred bushels of wheat than before. A "price" is an exchange ratio between a dollar and a unit of goods. When people have more dollars, they value each dollar less. Goods then rise in price, not because goods are scarcer than before, but because dollars are more abundant.

I have not used "inflation" in any other sense.

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@Francisco Ferrer

No, because price changes in the free market are the product of the interplay of supply and demand.
This is false (in fact, I think it borders on nonsense), for a lot of very complicated reasons. Anyway, your quote said:
There is always a considerable time lag between the increase in the money income of the white-collar workers and professional people and the increase in costs of food, clothing, and other necessities.
I don't see why this would be any less true of any kind of change in prices that doesn't result from inflation.
Inflation, on the other hand, is an artificial, government-engineered increase in money supply to finance deficit spending and other government objectives.
I don't think you understand inflation. It is the result of an increase in the money supply relative to the goods and services in the economy regardless of whether that increase is caused by government or the result of a trade surplus.

When I say "inflation" I specifically mean an increase in the money supply which has a tendency to raise prices in general. Henry Hazlitt wrote:

When the supply of money is increased, people have more money to offer for goods. If the supply of goods does not increase — or does not increase as much as the supply of money — then the prices of goods will go up. Each individual dollar becomes less valuable because there are more dollars. Therefore more of them will be offered against, say, a pair of shoes or a hundred bushels of wheat than before. A "price" is an exchange ratio between a dollar and a unit of goods. When people have more dollars, they value each dollar less. Goods then rise in price, not because goods are scarcer than before, but because dollars are more abundant.

I have not used "inflation" in any other sense.

"Economics in One Lesson" is one of my favorite books. :smile:

Greg

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"Economics in One Lesson" is one of my favorite books. :smile:

Greg

Does Hazlett deal the the problem and mechanisms of credit. The only way a capitalistic economic system can expand is to provided some sort of "future money" when when invested leads to the production of additional goods and services which redeems the future money (i.e. there will be something for it to buy). In short as the economy grows how do we grow our money to keep pace with the additional goods and services that are being made and purchased.

Does Hazlett also deal with the problem that the aggregate wages of labor cannot purchase all the goods and services labor has produced. (A simple arithmetic argument will show this to be true). Goods and services must be priced above the costs of the labor needed to produce them in order to make a profit.

Ba'al Chatzaf

Ba'al Chatzaf

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"Economics in One Lesson" is one of my favorite books. :smile:

Greg

Does Hazlett deal the the problem and mechanisms of credit. The only way a capitalistic economic system can expand is to provided some sort of "future money" when when invested leads to the production of additional goods and services which redeems the future money (i.e. there will be something for it to buy). In short as the economy grows how do we grow our money to keep pace with the additional goods and services that are being made and purchased.

Does Hazlett also deal with the problem that the aggregate wages of labor cannot purchase all the goods and services labor has produced. (A simple arithmetic argument will show this to be true). Goods and services must be priced above the costs of the labor needed to produce them in order to make a profit.

Ba'al Chatzaf

Why don't you read the book? It's comprehendible on the jr. high school level and very short. It's also a classic libertarian-conservative economics read. That way you can do your own up-front critique instead of smarmily implying one.

--Brant

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"Economics in One Lesson" is one of my favorite books. :smile:

Greg

Does Hazlett deal the the problem and mechanisms of credit. The only way a capitalistic economic system can expand is to provided some sort of "future money" when when invested leads to the production of additional goods and services which redeems the future money (i.e. there will be something for it to buy). In short as the economy grows how do we grow our money to keep pace with the additional goods and services that are being made and purchased.

Does Hazlett also deal with the problem that the aggregate wages of labor cannot purchase all the goods and services labor has produced. (A simple arithmetic argument will show this to be true). Goods and services must be priced above the costs of the labor needed to produce them in order to make a profit.

Ba'al Chatzaf

Why don't you read the book? It's comprehendible on the jr. high school level and very short. It's also a classic libertarian-conservative economics read. That way you can do your own up-front critique instead of smarmily implying one.

--Brant

Wow, Brant... who let the dog out?

However, did hit upon why it's one of my favorite books... "comprehendible on the jr. high school level and very short". :laugh:

Wisdom is always simple, concise, and easy to understand.

Greg

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