Increasing value of the valueless
Read the fine print on a pre-1933 bill: these promissory notes were redeemable for gold! (image by: geocities.com)
It’s turmoil as usual these days on Wall Street.
Sara Lepro reports for the Associated Press that gold prices are winding down as the dollar increases in value. Oil prices are up, cash advance loans are steady and agriculture futures are down.
The United States dollar’s rise in comparison with the European Union’s euro and the British pound is what is pulling the value of gold downward. Gold is typically used as a “hedge against inflation” when the dollar is weak. Gold prices are also tied to what’s happening in equity markets. As Wall Street has been pessimistic in that regard, gold has suffered. April delivery is down $24.70 at $918 an ounce on the New York Mercantile Exchange. It is largely a lack of investing which translates into such a decrease in gold pricing.
Gold used to work differently
Bill Bonner of the Daily Reckoning gives us a historical perspective of the gold vs. paper debate. A gold coin at least retains its value over time, much as gold denari from Biblical literature would. “Images on printed in green ink on special paper,” however, tend to lose two to five percent of their purchasing power yearly. What will a crisp 2009 bailout dollar cost 2,000 years from now?
Production also speaks to the relative value, Bonner writes. Gold is scarce and must be unearthed. The scarcity makes it valuable. Paper money, however, is being printed like crazy to “save America.” Worldwide, American dollars have lots of competition, too. There is no scarcity of paper money since the invention of the printing press. Compared with finding gold and the costs of unearthing it, the cost of printing money is negligible. It doesn’t cost much to increase the money supply as President Obama has done, either. Adding zeroes does not create added value, Bonner asserts.
Fiat cars and money lose value
Most paper currencies are ruined within a few years. Some take longer, but even the world’s two most successful – the American dollar and the British pound – have lost over 95 percent of their value in the last century by Bonner’s count. Two events in American history – when President Franklin Roosevelt outlawed private gold ownership in 1933 and when President Richard Nixon severed U.S. ties to the Bretton Woods System in 1971 – sounded the death knell for the dollar’s true value. It had been tied to value in terms of real commodities before, namely gold. Now dollars are fiat money. They lose value FAST, which is not something we need – particularly now.
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Anyone who does not take the precaution of investing in precious metals and/or other goods with intrinsic value now, will be caught without a chair very soon, in the fed’s giant musical chairs game. The music is about to stop!