Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
What to Do NOW in Case of a Future Banking System Breakdown - 13th Nov 19
Why China is likely to remain the ‘world’s factory’ for some time to come - 13th Nov 19
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19
Gold and Silver - The Two Horsemen - 11th Nov 19
Towards a Diverging BRIC Future - 11th Nov 19
Welcome to the Zombie-land Of Stock Market Investing - 11th Nov 19
Illiquidity & Gold And Silver In The End Game - 11th Nov 19
Key Things You Need to Know When Starting a Business - 11th Nov 19
Stock Market Cycles Peaking - 11th Nov 19
Avoid Emotional Investing in Cryptocurrency - 11th Nov 19
Australian Lithium Mines NOT Viable at Current Prices - 10th Nov 19
The 10 Highest Paying Jobs In Oil & Gas - 10th Nov 19
World's Major Gold Miners Target Copper Porphyries - 10th Nov 19
AMAZON NOVEMBER 2019 BARGAIN PRICES - WD My Book 8TB External Drive for £126 - 10th Nov 19
Gold & Silver to Head Dramatically Higher, Mirroring Palladium - 9th Nov 19
How Do YOU Know the Direction of a Market's Larger Trend? - 9th Nov 19
BEST Amazon SMART Scale To Aid Weight Loss for Christmas 2019 - 9th Nov 19
Why Every Investor Should Invest in Water - 8th Nov 19
Wait… Was That a Bullish Silver Reversal? - 8th Nov 19
Gold, Silver and Copper The 3 Metallic Amigos and the Macro Message - 8th Nov 19
Is China locking up Indonesian Nickel? - 8th Nov 19
Where is the Top for Natural Gas? - 7th Nov 19
Why Fractional Shares Don’t Make Sense - 7th Nov 19
The Fed Is Chasing Its Own Tail; It Doesn’t Care What You Think - 7th Nov 19
China’s path from World’s Factory to World Market - 7th Nov 19
Where Is That Confounded Recession? - 7th Nov 19
FREE eBook - The Investment Strategy that could change your future - 7th Nov 19
Is There a Stock Market Breakout Ahead? - 6th Nov 19
These Indicators Aren’t Putting to an Economic Resurgence - 6th Nov 19
Understanding the Different Types of Travel Insurance - 6th Nov 19
The Biggest Gold Story Of 2020 - 6th Nov 19
Best Money Saving FREE Bonfire Night Fire Works Show Sheffield 2019 - 5th Nov 19
Is the Run on the US Dollar Due to Panic or Greed? - 5th Nov 19
Reasons Why Madrid Attracts Young Professionals - 5th Nov 19
Larger Bullish Move in USD/JPY May Just Be Getting Started - 5th Nov 19
Constructive Action in Gold & Silver Stocks - 5th Nov 19
The Boring Industry That Hands +500% Gains - 5th Nov 19
Stock Market Chartology vs Fundamentals - 4th Nov 19
The Fed’s Policy Is Like Swatting Flies with Nuclear Weapons - 4th Nov 19
Stock Market Warning: US Credit Delinquencies To Skyrocket In Q4 - 4th Nov 19
Stock Market Intermediate Topping Process Continues - 4th Nov 19
Stock Market $SPY Expanded Flat, Déjà Vu All Over Again - 4th Nov 19
How To Buy Gold For $3 An Ounce - 4th Nov 19

Market Oracle FREE Newsletter

How To Buy Gold For $3 An Ounce

US Dollar RIP

Economics / Inflation Aug 27, 2007 - 09:49 AM GMT

By: Adrian_Ash


"...The call for more money to fix the financial markets comes just as global inflation is beginning to cause real mischief..."

EVEN IN DEATH, it seems, you're no longer safe from the iniquities of inflation.

In Cheshire, England, a man has just been charged with stealing 400 bronze memorial plaques from his local crematorium. Bronze is 90% copper, and thanks to the price of copper quadrupling inside four years, the melt value of those R.I.P's now stands above £145,000 – some $290,000 at today's exchange rate.

Outside the Garden of Remembrance, beware the evils of inflation at dinner time, too. Fishmongers in Thailand have been disguising meat from the deadly, and therefore worthless puffer fish as salmon, reports the Associated Press, killing 15 people in the last three years.

Health and safety officials in Beijing, meantime, just raided a "recycled" chopsticks factory. It has been selling up to 100,000 pairs of used, disposable bamboo chopsticks per day, without using any kind of disinfectant first.

In the United States, "my wife came back from Wal-Mart," writes a reader of Mike Shedlock's Global Economic Analysis , "complaining about her favorite major brand chicken-breast patties going from fifteen per pack about a year ago to twelve this winter to ten per package at the same price recently."

Over at Whiskey & Gunpowder , Fred Sheehan notes the same trend – the trend of one Dollar buying less stuff with each day that passes. General Mills, the giant US foodmaker behind Lucky Stars and Cheerios, warned back in March that "input costs" were due to rise. Now the Minneapolis Star Tribune reports that, "customers will actually see lower prices per box, but the cereal boxes will be smaller, so the effect is a price increase of a few percent."

This kind of creeping inflation – Route #1 to giving you less stuff in return for each Dollar, Pound, Euro or Yen that you spend – is nothing new, of course. On the shelves of the candy store just next-door to our offices here at BullionVault in London, the King Size Mars Bar ain't what it used to be. It ain't even what the standard Mars Bar used to be, either.

"Among the things that money can't buy is everything it used to," as Max Kauffman, the comedian, joked in the 1950s. But US consumers have since lost their sense of humor. The Dollar has dropped another 86% of its purchasing power since then.

So where next for the flight to safety? Here in the United Kingdom, and despite the Pound Sterling breaking back above $2.00 already this week, the cost of living has risen 30 times over since 1945.

Put another way, the Pound – strongest of the world's five major currencies in 2007 – now buys only 3.3% of the "stuff" that it bought at the end of the Second World War. With the UK money supply still growing by 13% year on year, the trade-off between quantity and quality has only become clearer.

Less-stuff-per-Pound or Dollar is as plain a definition of inflation as you'll ever find. It works when prices rise – the common-or-garden use of the word – and it also works when rising prices are hidden by shrinking the size of what money buys.

In the inflation-crazed '70s, corporations "discovered that they could increase profits and expand market-share by degrading their product, advertising relentlessly, packaging it in a different form, and raising its unit price," reports David Hackett Fisher in The Great Wave , his grand history of price revolutions across the last eight centuries. But less-stuff-per-Dollar wasn't just a corporate strategy. It became a necessity as input prices rose across manufacturing, home-building, transport and most crucially the consumer goods sector.

David Slawson, a US economist, made a study of this "competitive inflation" in the price of chocolate bars. They rose seven-fold between the late 1950s and '83 in a series of small five-cent increments. "Each increase was disguised by the making the bar larger at the same time," he found, "the size of the bar having been gradually decreased since the time of the last price rise."

Fast forward 25 years, and what price a mid-morning Snickers as summer '07 drips through the guttering? The spot market in cocoa has taken a tumble so far this month, after forecasts of an over-sized surplus in the 2007/08 season. But the price of drinking a cup of tea in England rose by 5.5% in the year to July according to the official government data.

At the sillier end of the hot beverages market, rising prices have finally forced me to swap my favorite cup of over-priced foam for an inferior bucket of what passes for coffee. The government's statisticians might call this "substitution" – and as I'm now getting more liquid for less money, they might call the net result a drop in my cost of living, too!

But mud-flavored water – like second-hand chopsticks, unwashed and resold – does not mean the value of the cash in my wallet has risen.

"Governments are often tempted to answer the cry for more purchasing power by simply creating more money," as Jerry L.Jordan – a central banker of all people – wrote in a recent issue of the Federal Reserve Bank of St.Louis Review. "But in so doing, the opposite effect is achieved – the purchasing power of money is actually reduced."

"The result," Jordan continues, "is inflation: a rise in the number of Dollars required to purchase a given standard of living."

Put another way, the current crisis in world investment markets will only increase the quantity of money – not its quality – even if fresh central-bank lending somehow manages to bail out the world's biggest investment banks. (Bailing out US homeowners, whether through a dramatic return to the "emergency" interest rates of 2003, or by creating new money – out of thin air – to refinance their mortgage debt, will do just the same.)

One defense that cash savers and hard-put investors might choose is gold bullion. No one's credit-backed promise, and impossible to create at will, gold remains as far from today's mountain of complex financial junk as an investor can get.

By Adrian Ash

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2007

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


27 Aug 07, 14:40
high grade bonds

high grade bonds

like those people flocked to during the great depression that the banks made a killing off, after FDR coincidentaly banned gold

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules