$ devaluation & 10¢ gas

I saw an interesting segment on CNBC a while ago.

This analyst was saying that all he ever hears is how gasoline is at record highs of over $4 a gallon. He then said that in reality gasoline has never been cheaper. Gasoline costs just 10 cents a gallon! The problem is you need a "real" dime from 1964 that's made of silver to buy it.

In other words, you can buy a gallon of gasoline with that 1964 U.S. dime.

He said it proves his point that nothing is very expensive now in reality, it's just the the U.S. Government has printed so much unbacked paper (fiat) currency, that the dollar has lost it's value -- so things sound expensive -- in reality it's the dollar that's become less and less valuable.

It's a very interesting way to look at things.

 

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I wish the gas stations saw it that way too.

 

all you need is 2 stops instead of 1

- first stop at your local coin dealer where you sell your 1964 dime for $4
- then take that $4 to the gas station where you buy your 1 gallon of gasoline

total out of pocket cash is one thin 1964 dime ... and you have your 1 gallon of gasoline in hand

(the trick is to have been alive in 1964 ... and to have socked away bags of pocket change in your walls ... but it does show you how much our paper dollars have devalued over time)

 

*sigh* If only I were 25 years older.

 

Sounds like he is blaming the government for printing too many notes. Its of course the right way to look at it, but think of it more as a symptom of inflation. In an inflation environment, (and you want mild inflation versus deflation), over time all nominal dollars go down. We are wired to not think that way though, so we are shocked by higher prices. Most people, though, have thier wages go up every year. Do you really think this is "free money"? Most of the time its just to keep up with inflation. Your real pay increases has been eaten up by health care costs and government taxes most employees do not see.

I would look at all items relative to each other. In the mid 60's gas was, what, $.40 a gallon? Bread was about $.20? About the same relationship today. Yes, you can use PM as your basis, but only if you acknowledge PM is a commodity like any other commodity, adn should go up by inflation over the long term. PM didn't, it went down substantially for a long time, but has come back up to near normal levels, (at least gold and platinum, silver has overshot the mark to me).

 

I will trade you Winged. You can go to 1964 and collect a dollar in silver coins if I can place a dollar in an S&P 500 index fund, and the winner gets to keep both.

Yes, we are both losers if we kept the money in dollars, but that will ALWAYS be the case in modern economies.

 

Everyone cries about what prices are now compared to then. If you want the old prices, you gotta take the old income.
Back in 1964, the average wage was $75.00 per week. Now it's about $750.00 a week.
You want ten cent gas? you gotta take $75.00 a week pay.

$75 paid the monthly rent/mortgage, too.

Both income and expenses tend to rise equally.

 

These are synonymous terms. Inflation is created by printing too many dollars. It's been built into every fiat money system ever invented and hence also the fatal flaw of every fiat monetary system ever created. Inflation is not the definition of a scarce commodity due to demand out pacing supply.

On your second point silver was not a simple commodity in the early 60s and prior. Silver was absolutely defined as a monetary asset by the federal government in the form of $ silver certificates and silver coinage. Gold was still being used to settle balance of payments with foreign governments. They were not commodities at all by definition. However because these dollars traded on equivalent terms with fiat dollars (federal reserve notes) and the inherent inflation that comes with it, the USA was forced to end the silver and gold redemptions over the late 60s and we went completely fiat in 1971.

Now note there is a fundamental difference between the two metals in this regard that investors often don't "get". The USA sold off all its silver reserves and it has none now. On the other hand it kept all its gold (and in fact technically bankrupted itself by refusing to pay off Europe in gold) and that gold is now listed as an asset of the USA and the Federal Reserve. When governments hold a significant amount of the entire world's supply of an gold in storage, it can never be a commodity. Silver is a different case. While it has no relationship to the value of money these days, the vast amount of trading of this metal is for naked shorts where there can never be any hope of delivery. So in this case I would say that it fails to meet the commodity test as well.

Of the two, Silver is a crap shoot, Gold is not.

This bears reading.
http://www.shtfplan.com/precious-metals/precious-metals-storage-scam-sorry-delivery-is-not-possible_04192011

 

I agree mostly Fatima, but would still state mild inflation is more desirable than deflation. Its hard to keep prices exactly as they were, so I think the government makes the correct choice if they have to choose between deflation and mild inflation. This is especially true taking into account human nature. We all want a raise every year. Well, even if we improved our productivity 5%, (productivity is needed to justify higher pay economically), 5% would get eaten up by health care and taxes. To afford to give an employee a 3% raise, we would have to assume inflation on our sales prices of the firm. The employee THINKS they are better because of 3% money, but then complains about the inflation. This inflation is really driven by everyone's desire to get a raise. Therefor, the inflation is a self fulfilling prophecy.

Just a question to everyone who thinks inflation is ONLY determined by the Fed. How does this justify a crop shortage or the like? I mean, cotton has gone up dramatically, so has corn. Both of them have gone up much more than the dollar has fallen. In my basket of goods every month, the price has gone up because of these two items. Yet, many people here would say my inflation, which to me is the price change of my basket of goods, is only due to the Fed printing money. This is my disconnect here, people saying price changes are only a symptom of inflation. To me, it IS the measurement, the actual inflation, and causes can be debated. Kitco even has a chart daily showing how much gold has gone up in real terms, and how much is attributable to a weakening dollar.

Chris

 

i just thought the CNBC segment was interesting ... thought I would share ... i didn't intend to start a riot!!

 

It would have been a lot cheaper in jan 1980. I don't remember the gas price 9 probably under $1) and silver was a little higher, so maybe 3 cents silver bought a gallon of gas then ?

wages are not increasing at the rate of inflation, many people make much less than a few years ago.

 

Government should have no role in the creation of inflation or deflation. However once they convert the currency used for trade to 100% fiat and put laws on the books to prevent any competing currency from being used, then government has 100% control over inflation or deflation. (plus a great deal of control over its people)

Inflation has to occur in a debt based system (fiat money) because the investors that own that system have to be paid off. Yet these people have no role in the actual creation and consumption of the real wealth covered by the currency transaction so the question is raised. "where does the money come from to pay off the investors?" The answer is they inflate the money supply to provide siphon off the wealth. This is a simple example:

In an asset based economy, say silver, there is no 3rd party involved. I buy a dozen eggs from a farmer and pay him with a silver dollar. The value of that money is in the silver. This is how the USA operated until the 1930s. There was essentially no inflation for over 130 years.

In a debt based economy, I buy a dozen eggs from a farmer and pay him with a Federal Reserve Note. This money entered the economy by the FR "loaning" the money. It expects interest to be paid on this money. So for example if the interest is 5 cents/year where does the 5 cents come from? Or rather, when I use the dollar to pay the farmer who is paying the interest on that dollar? What ends up happening is they inflate the supply of money so next year in this example, I have to pay the farmer $1.05 for the same purchase or the farmer gets less wealth. So in other words, the farmer and myself didn't change anything, but because a 3rd party is involved in the transaction who didn't provide anything beyond a piece of paper, one or both of us loses out. This is the fundamental flaw in the fiat system.

This is why there is inflation and why there will always be inflation until the Federal Reserve blows up. They have to keep inflating the money to keep paying off the accumulated interest. The problem is that any system that is inflated at a constant linear rate, will end up with a geometric increase in size with the end coming at an extremely fast rate.

 

No inflation for 130 years? Do you have documentation of that? I have read many articles concerning how much things cost, and have read how the US used to use cents for their main coin of small transactions, then around 1880 it moved to the nickel, then it was a combination of nickels and dimes in the 20's. It seems things still inflated over that period, with the exception of deflationary periods like the 1890's.

 

here's something on it

http://mykindred.com/cloud/TX/Documents/dollar/

 

I could argue that that wasn't because of inflation, but because of a strengthening dollar over that general course of time as the US rose to a dominant position in the world culminating in the late 1920's before the lull in the 1930's, then the rebirth of a world power in WW2.

 

I'm thinking the average wage was a little higher than that. My mom was pulling $75/week in as a grade school teacher in a small Southern town in those days, so I think wages might have been a little higher for other occupations and locations.

 

the ( 1967) dollar was worth $1.96 in 1800 and $2 in 1930 with a lot of ups and downs along the way.

1800 products were different than 1930 products, though. No cars, or anything electric, etc in 1800. I think it is based heavily on stuff like grain and livestock prices.

You can't really compare stuff like a tv set's price in 1952 to the price in 2011 or stuff from radically different times, IMO. The new TV is not only much better, but cheaper.

 

When I was in college 60 years ago, selling gasoline at night for 16 cents a gallon while earning minimum wage of 35 cents/hour, I could buy a 2.2 gallons of gas for an hour's work.

A current college student selling gasoline at night for $4.20 a gallon and earning minimum wage of $8/hour (California) can only buy 1.9 gallons for an hour's work. In other states where the lower federal minimum of $7.25/hour applies, he can only buy 1.72 gallons.

Gasoline is not selling at record low "real" prices!

 

It's not valid to compare minimum wage to one commodity only and draw a conclusion. You'd have to work a lot more hours for a TV set in those days than now. The CPI while not perfect is at least better than using minimum wage to gas prices. Gas was like $1.80 when Obama took office, it is too volatile a commodity to use for this comparison.

 

It was about $1 when the Clintons were in office, that might be real low price ?