What effect does a devalued dollar have on precious metals?

What does that cost increase actually mean to everyone? Is bread 3000% less affordable? How many people cannot afford a loaf of bread these days versus how many people had trouble buying the very basic staples like that in 1930?

The salary in 1930 was about $1400, so that 9c pound of bread was 0.0064286% of a salary. The median income 2006-2010 is 51,914[1], so an average loaf of $2.86 is 0.0055027% of a salary, or 85% of what is cost a person in 1930. The bread is a little more affordable these days actually.

[1]: http://quickfacts.census.gov/qfd/states/00000.html

 

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Lol, how does your little bread analysis having anything to do with central bankers? Um, lets see, we had a deflationary period for farm commodities in the 30's, we have had a worldwide wheat shortage lately, stores are charging more for shelf space nowadays, your average shows many stores are just tacking on excessive profits if one can sell for $1.79 a loaf, etc etc. All of the things I refer to actually has something to do with price differences in the bread, not a single thing refers to your evil "banksters". I would bet you if you did your same comparison on bread comparing it to the average wage you will get pretty similar results from the two time frames.

Man, those little bankers are just hiding around every corner ready to steal your lunch money, huh?

Edit: I guess ctrl actually already did the comparison for us. TY sir.

 

Howdy,

It's a bit complicated - the connection between gold and the dollar. And it's changing. The dollar for years, has been the global both reserve currency and the currency of trade. Both functions are being reduced by other gov'ts for a variet of reasons. So long as the dollar is the 'currency du jour', it will often work exactly opposite of gold. Over this past year, as the dollar strengthened, gold weakened. As the folks in euroland looked for a safehaven away from their banks and the Euro, they fled to the dollar. However, it's very curious that gold is only flattish relative to the dollar - it is up relative to all other currencies.

Now, here at home, we face a bar tab of over $100 trillion freakin' dollars in Unfunded Liabilities (social security, medicare/aid, various trust funds, debt service, etc.). Note that this is at the Federal level and there equal problems at the state and local levels. Oh, and before everyone starts dumping on the gov't, please note that the private pension guarantee trust (PBGC) is also an unfunded liability at the federal level.

Now there is no politically feasible way for them to cut or reduce benefits (defaulting on their debts, as it were) sufficiently, NOR are they able to raise taxes sufficiently,

 

Howdy,

The relationship between the dollar and gold is complicated and changing as we speak. The dollar has been used as for decades as the worlds reserve currency and trade medium of exchange. Many countries are trying to move away from this but it's a very slow process. Because of this relationship, gold and the dollar often move in opposite directions.

Gold is traditionally thought of as a store of value and inflation hedge. As the dollar becomes less of the global reserve currency, it will function less as a store of value and gold should benefit. Note that gold is only flat this past year relative to the dollar. It is up relative to most other currencies.

Now, the issue at home is that at the federal level, we face a bar tab of over $100 trillion freakin dollars in Unfunded Liabilities (social security, medicare/aid, various trust funds, debt service, etc.). Similar debts exist at the state and local levels. Private industry has been voiding their debts and promises via bankruptcy court (the pensions get picked up by the taxpayers via the Pension Benefit Guarantee Corp (PBGC)). The problem is that there is no politically feasible way to sufficiently reduce or default, as it were, on these debts NOR is it politically feaible to sufficiently raise taxes to pay it. And the kicker is that they can't even cut benefits AND raise taxes sufficiently to pay it. Their only option is to monetize it. Ah, there's the rub. In laymans terms, they'll just print green backs 'til **** won't have it and pay the tab with those shiny new bills. They call it Quantitative Easing. Ain't it great to be the gov't.?!?

I've seen estimates that in order to get this debt down to a size they can deal with they will have to print so much money
that they will halve the value of the dollar over the next ten tears in the process. Note that since the Federal Reserve was created back in 1913, the dollar has lost 96% of its value.

Now, this would normally resort in some hideous double digit inflation and if out of control, could devolve into Hyper inflation. Right now, they've got a lot working to keep the inflation meanies away - globalism and internet shopping, continually shipping jobs to lower cost labor centers, a velocity of money around zero AND good old fashion book juggling.

Globalism and the internet have eliminated most all consumer good pricing power, flat screen TV and smart phones are all being made overseas and it's gotten so that the citizens of japan, korea and tailand are *****ing that their jobs are being sent to vietnam, bengladesh, etc. The velocity of money is around zero right now because the big banks are not lending it out. They're not lending it out, because interest rates are artificially being kept low by the Fed. It's called Econ 101 Supply/Demand curves for Price Controls. When the official price is lower than the market feels fare, supply disappears or premiums increase. Nixon gas controls, bullion a couple of years ago, etc. No banker is going to write you a mortgage for 30 years at 4% - sorry, they are all out of money. Now if you want to pay 6%, they'll talk (or with 30% down payment and an 800 credit score). Anyway, because money is not being loaned out, it's not circulating. Therefore, inflation is not being felt across the board. As for book juggling, visit

http://www.shadowstats.com/

He calculates the basic gov't stats they way they do today AND how they did them in 90 and how they did them when Reagan was Pres. Right now, unemployment is about 22% and inflation over 6%. If they start loaning money, inflation will go over 10% in a heartbeat.

I guess inflation can be described by me going to the store for a loaf of bread in 1960 with a quarter and that same silver quarter today is worth $6-7. Or, they used to have Five and Dime Stores where most items were less than a dollar and many were five or ten cents. Today we have Dollar stores.

I believe that we'll have serious inflation within the next 10-15 years AND it will be stagflation - The Great Austerity is what it's been labeled. Give it until 2023 to be a flatline sort of bad dream. Probability? 60%. Or, things could finanically implode in some form or another - Probability? 30%. Or things could just be a wonderful economic wetdream of a recovery with a chicken in every pot. Probability? 10%. Note that I'm planning on the former, guarding against the middle and hoping for the latter.

peace,

rono

 

Average salaries don't matter if you don't have a job. Your statistics don't include participation and the skew.

However there is a very easy answer. It's ~85 million people which is ~28% of the population. See below.

As of Nov 2011 (last month figures are available), there are 46,286,294 people that are on the Supplemental Nutrition Assistance Program which is more commonly known as the Food Stamp program. According to the program description on Wiki, in order to qualify "Recipients must have at most near-poverty incomes to qualify for benefits.". Despite common perceptions, it's difficult to qualify for this program. I think it is safe to assume that if you are on this program, a loaf of Wonder Bread each week at $2.86 would be difficult.

• 46,286,294 is a record number of people on Foodstamps and it represents 15% of the USA's population using the number from your link above. These are people who absolutely can't buy the bread without government assistance.
• There are another ~25,000,000 workers who don't earn enough money to pay federal income tax. I would say that purchases of $2.86 Wonder Bread might be an issue for them. This brings the number up to 71,286,294, or ~23% of the population. This includes 8.2M people who the BLS were recently forced into part time workers.
• The BLS also says 13M people are unemployed as of last month, and another 1.1M stopped looking. So this brings the total 85M.

(In reality the numbers are worse than this, but a different subject)


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Of course in regards to this topic, it doesn't matter. It could be argued that it was the policies of the central banking system, which decides currency values without regard to the market, which has caused this desperate situation in the USA. But the point is that monetary inflation does this to prices over time. In the case of bread the rise was over 3000%. A very real number for many people. It serves no purpose but to force people to take their hard earned savings and put it at risk or suffer a inflation tax. The problem with this kind of risk is that it is then easy to engineer booms and busts and for most people the end result is they lose anyway.

This is why gold & potentially silver will continue to do well. It's one way out of this mess.

 

You realize you are the one comparing against Great Depression years, don't you? Just stop. All the rest of your post about people who you (broadly, incorrectly) assume cannot afford $2.86 for bread simply does not compare to your comparative time period of 1930 or 1933... seriously. 25% unemployment, 65-75% underemployment, millions dying from famine... and yet no fiat money anywhere to be seen.

To touch on just one of your other "points", for those not making enough to pay income tax now, that's because of all the breaks/credits/deductions, and includes plenty of people who make boatloads of money as well as the very poor. You are dishonest trying to use that 25 million number wholesale like that to say all those people cannot afford a loaf of bread.

Gradual inflation is offset by gradual wage increases with expanding money supplies.

My point about the relative affordability of the bread remains.

 

It won't take anywhere near 20 years.

 

I didn't bring up the example. I only provided the math, as an innocent bystander, that proves the case. And you readily jumped in with full enthusiasm until proved wrong and now you consider it a waste? I was careful to make sure I was fair with the numbers. I take it, that since the math contradicts your view of reality, that you choose now to ignore it and attempt to make the issue "me" instead. It's a common feature on this forum.

"My point about the relative affordability of the bread remains. " You are welcome to your opinion of the effects of monetary inflation but the math I provided says otherwise.

 

What math? I provided math too, showing that the cost of bread in contemporary dollars actually went down. You bring up unemployment, I provide more math showing that it's absurd for you to try and compare unemployment for the two time periods you set out. Your "math" doesn't show what you think it does. You completely ignored what I presented and instead turn it into me somehow changing the issue. It's a regular feature of your posts, even when proven wrong, you're still correct.

No one is disputing that inflation has occurred. I don't know what you think you're arguing here.

I knew there was a reason I had taken a break from cointalk. Ridiculous.

 

I would turn that around a bit. There is no feasible way for them to pay for the unfunded liabilities. And if something is impossible, it probably won't happen. Therefore, they most certainly will cut the benefits either voluntarily through some sort of restructuring of social security and medicare [e.g., raise the age, means test, raise the tax...] or involuntarily through crisis and collapse. Fortunately, since these are unfunded liabilities and not debt, there will be no default -- "just" painful reductions in service. But there is no other feasible outcome.

 

Son, you turned this into an argument by making a sarcastic remark about my $3.99 bread price. When I provide some real numbers, you ignored that and then said it didn't matter if inflation happened because bread was more affordable now than it was in 1933. Your proof was this was because average salary was higher vs bread price. I disagree this is a valid conclusion because average doesn't say where this money is going in the population.

You then asked me how many people can afford bread. I assume now the question was rhetorical, but I decided to answer it anyway, just like I did when you decided to dismiss my $3.99 price given for bread. I gave you a relatively simply answer based on the number of people getting foodstamps, who are unemployed, or not earning a living wage. These numbers are easy to pickup from the government and are not subject to debate except that IMO, they under-report. Now you may disagree that people in these categories don't have any problem affording bread, and that's fine with me. I'm not the one who brought it up.

 

You understand there is a big difference between refuting and ignoring, right? I exactly did not ignore what you wrote because I refuted it. I directly addressed it, which is the opposite of ignoring. I asked you if the 3000% increase in real dollar cost made the bread 3000% less affordable for people now. Your answer didn't respond.

And don't call me son.

I disagreed with your stand that a $3.99 loaf of bread is standard in comparison to the type of bread available in 1930. You proceeded to dishonestly misuse some numbers of people not paying income tax as proof that they cannot afford $2.68 for a loaf of bread. Your answer to this doesn't help your claim.

You brought up unemployment in an attempt to show that even though median salaries have increased (you mistakenly refer to average salaries) that more people overall are unable to afford $2.68 in bread, in comparison to the 1930 time you put forth. I pointed out how you're missing the fact that you're comparing now to the *Great Depression*, which totally undermines whatever point you're trying to make.

Inflation has happened. Does that mean that common items are less affordable now than they were in your time period of 1933? No. Wages have increased alongside, and economic efficiency has greatly increased. Even the very poor typically have refrigerators, tvs, and enough to buy $2.68 in bread. Not remotely so for your gold-backed time of 1933.

 

^I've got no problem with that response. It's certainly better than stomping your feet, questioning my integrity, and calling the entire matter ridiculous. But I tire of this now so I'll leave it at that.

 

I imagine it in a different light. Have you ever lived where a hurricane came through? Well after it is over, it is surprising something strange happens. The neighbors come out, and everyone teams together. Chainsaws are running, and things are happening. I see a 33% inflation rate as the tool that will speed up the oncoming hurricane. The collapse will hit, and hit hard. If you live in an urban environment it will not be good. But the pyramids of Giza were built in 75 years. It is in the opinion of some that we will pull out of whatever collapse faster than expected. I would say that going into high inflation, the value of silver would go up. If the dollar completely collapses, the wealthy would continue to invest in PM's, but everyone else could care less.

After that I believe we have a change in the perception of humans towards fiat currency. I do not believe anyone would trust in printed money/non physical for a long time. Perhaps PM's would then be used for exchange in the barter system. History repeats itself right?

 

The actual article is referring to a 2% inflation target over 20 years (as a means to avoid deflation in recessionary times). Not the same thing as 33% inflation rate, and actually slightly less than the modern historical average of around 3%.

 

The Fed will never be able to maintain a 2% inflation rate. In the last 5 years in real terms, it's been 3%, 10%, 3%, 3%, 10%. This is 32% in just 5 years. The 2 10% years are due to QE1 & QE2.

 

Even QE1 and QE2 pale in comparison to the amount of inflation we've had due to suppressed interest rates, and thus credit expansion due to loans that profit from the interest rate spread. QE gets all the attention because it's a quick shot at once, but ZIRP through 2014 is going to outperform the QE's in that regard when all is said and done. If they can't raise interest rates then inflation is guaranteed. To stop inflation they would have to not only increase interest rates to 10-15%, but they would also have to destroy all (or an equivalent amount) of the money they've already printed that hasn't reached the market yet. There's no way they can think about this in an economy that simultaneously has a declining employment to population ratio and a growing number of able bodied workers not among the work force. Not only does that reflect on how zero % interest rates are required to keep things going, but there are that many less people paying taxes into the exponential debt monster. When people used to talk about 'oursourcing', what it was they were referring to was the global wealth redistristribution from the west to the east, and the east is buying gold exponentially too. If you're holding currency your wealth may be stolen by inflation, and if you're not holding hard assets your wealth may be stolen by unsavory characters. I never understood the mentality of giving your money to strangers. When you think about it, it is quite insane.