02/16/11 Tampa, Florida – Rick Ackerman, of Rick’s Picks newsletter, ran an essay by his “correspondent and occasional guest essayist Erich Simon.”
He starts out provocatively enough with, “The dollar is down about 98% since it became global tender.” Immediately, I can feel the beginnings of another Wild Mogambo Outrage (WMO) stirring within me, building into a raging anger at the Federal Reserve for creating so much money, and thus so much inflation, that the currency of my country has been so ruined that it contains a lousy 2 cents – 2 cents! – of buying-power left of that original 1913 dollar, which had (as I surmise) 100 cents of buying power.
Of course, it won’t take me more than a couple of “expletives deleted” before I REALLY get into a snit about the current incarnation of the foul Federal Reserve and its insane degrees of money creation, and about Ben Bernanke, the despicable liar and laughable incompetent who is now the satanic chairman of the Fed.
My growing violent outburst was, surprisingly, soon replaced with outright fear, as what I thought was an insightful essay turned into a pop quiz! Yikes!
“Back in 1971,” he starts off by way of introduction, “the price of an ounce of gold was $35 – in line with its 1945 conscription. Right after Nixon closed the gold window, the price popped to $42.”
Then he continues with the question of the dreaded pop quiz, “All things being equal (and assuming gold doesn’t get used up), at what price must gold be valued to compensate for a 98% loss from – call it inflation, debt or whatever you like?”
Just between you and me, I admit that I did not know the answer, and I did not know how to even start to figure it out, and (most importantly) I did not give a rat’s ass about his question because I am only here looking for a way to make a lot of money in a hurry by foolproof investing in something guaranteed to go up.
Kindly ignoring my grubby, greedy, “love of money is the root of all evil” selfishness, he kindly provides an answer: “I think the math goes like this: One dollar is now 2% of its former self. If you divide the 1971 ‘fair market’ price of $42 by .02, you arrive at $2,100.”
Apparently Mr. Simon could see the look of sudden confusion on my face as to the significance of this, foundering, as I habitually am, in a wasteland of stupidity and clueless confusion. He helpfully volunteers the hint that “The price of gold (POG) is in fact now around $1,365.”
On a hunch, I look at his $2,100 “fair market” price of gold and compare it against the current $1,365 price of gold a few times, and after a few hints and a couple hours to think about it, I realize, “Wow! He’s right! This would indicate that gold should appreciate by about 50% to achieve its fair market value! Wow!”
I hastily conclude that here is one MORE reason to buy gold, and if I had any sense or any money I would immediately go out and buy some.
And, best of all, I think I can make a case that the 1971 price of gold was not the “fair market” price at either $35 or $42 an ounce, and I think it should have been a lot higher since the entire American population, the largest consumer market in the world and representing about half of global GDP, was prevented from owning any gold at all!
So, the $42 per ounce price of 1971 was an “agreed-upon” price, not a market price.
Hell, the fact that France noticed this glaring disparity and started exchanging their dollars for gold caused Nixon to shut the gold-for-dollars window in that selfsame 1971!
Apparently recognizing the force of my argument and growing weary of arguing with a crazy man like me, he goes on that perhaps an alternate valuation metric would be to “measure gold’s purchasing power against a basket of necessities. Such as food.”
To this end he notes that “A representative bag of groceries in 1970-71 (California prices) might include a pound each of pork chops (59 cents), potatoes (9 cents), apples (15 cents), onions (9 cents)… a bunch of celery (38 cents), a dozen large AA eggs (59 cents), a quart of milk (33 cents) and a can of Campbell’s tomato soup (10 cents). The total for the 1971 bag is $2.32.”
Fast-forward to today, “that same bag costs (in Pennsylvania prices): pork chops ($3.95), potatoes (98 cents), apples ($1.16), onions ($1.06), celery ($1.68), large A eggs ($1.86), a quart of milk ($1.02) and a can of Campbell’s tomato soup ($1.00). The total is around $12.71.”
I am not sure why he went from using California prices to Pennsylvania prices, but I am pretty sure that it is a Secret Code Of Some Kind (SCOSK), probably about how you had better be buying gold, silver and oil as desperate protection against the massive inflation in consumer prices that is guaranteed by such monstrous, profligate money creation by the foul Federal Reserve, and how everybody living in any area between California and Pennsylvania should rise up in angry rebellion and demand the immediate destruction of the Federal Reserve and the re-installation of the classic gold-standard as required by the Constitution of the United States so that we can thus “fix” our economic problems and also thus ensure that they never, never happen again.
Well, Mr. Simon’s silence on this last point is, I think, very telling, and he studiously avoids any mention of secret codes by continuing with, “In this off-the-shelf comparison, food prices are 5.5 times higher than in 1971.”
That means it takes 5.5 times as much money for the poor to keep from starving than it took in 1971. And a lot more than that since 1913.
That’s the sad, sorry, despicable legacy of the Federal Reserve, and especially of its two biggest villains: Alan Greenspan and Ben Bernanke.
Of course, if you had been accumulating gold, silver and oil the whole time, you would be Just Fine (JF), and would have made a lot of money, too! Whee! It just proves that this investing stuff is easy!
The Mogambo Guru
for The Daily Reckoning
The Mogambo Guru
Richard Daughty (Mogambo Guru) is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher of the Mogambo Guru economic newsletter, an avocational exercise to better heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning , and other fine publications. For podcasts featuring the Mogambo, click here.
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Bill Bonner says
“…who said investing was going to be easy?
You say
“Whee! … this investing stuff is easy!”
So one of you is lying and since he writes in English where as you write in secret code he must be telling the truth.
Fearless leader: i know what causes a man of you stature to take a couple of hours to understand something you already know: SOBRIETY.
This is what happens when a man who can already think straight relies on math rather than rotgut, logic rather than armed resistance, and “hope” rather than years of justifiable paranoia.
What the HELL is going on over there?
I’ll tell what i’m getting: Lawyers, Accountants, and some mean old teacher who will give you all detention for going up and down “their” cursed stairs two at a time! we all know how “dangerous” it is to do that, too!
look at all the participation, here: Chuck has been told by the “powers that BE” to change his way of expressing himself. Bill is giving financial advice, then not, then giving it again, but NOT to “sell the FED’s and China’s fave ‘asset’ “, and you!!! (yes, X3!!!)~~~you haven’t threatened violence, mayhem, and murder in at least three days!
I hope you will accept the strap-ons you MUST be receiving in the spirit in which they are gifted!
Now, excuuuuse me while i go talk to Yosemite Sam about how to get the hall monitors to BACK OFF!!!!!!!!!!!!!!!!!!!!!!!!
The truth is that the only winners from inflation are the banks and those individuals who work in them.
Everyone elses wealth is depleted over time.
Working five and a half times harder than we had to in 1971 to achieve the same standard of living seems about right to me.
I think perhaps salaries have also risen somewhat since 1971. Even for ‘the poor’. It is pointless to argue it takes 5.5 x more money to live now just because food has gone up by that amount. What about rent, property prises, gas prises etc. If you want people to buy gold, perhaps make some more rational argument to do so.
Question Mr. GMG. Why can’t used oil be recycled to make new fresh clear oil? After all it’s just liquid dinosaurs, right? I can’t store much unlike Ag & Au.
Sincerely,
JF
Today we are using “Digital Gold Currency” to pay for those groceries. The GoldMoney iPhone app, awesome!
Don’t those on welfare and gov programs get cost of living increases to keep up with inflation…hahahaha -Happy slaves are the most grim enemies of freedom.
To tom
Abiotic fuel..look it up
And great artical you make me smile even know I know I am screwed royaly with my (iou’s) that the FED gives me for my hard work
Bill Bonner says
“…who said investing was going to be easy?
He’s not saying it’s not easy, he’s just asking who said it!! The answer, as any JMR knows, is:
The Great Mogambo said it!!
We need the “White Panther”, the “JERK”, Steve Martin, TO: “WALK LIKE AN EGYPTION” and ask 78 million Baby Boomers to meet in Washington DC and ask the Republicans and Democrats to stop bickering and get together so we can all make a pile of money, if we were all wealthy, it would be the great equalizer than we could be spending our way to hapiness, that would be the greatest “GOLD” booming economy. lets get back to having fun and living good.