Monday, March 23, 2009

The National Financial Mess

I haven't blogged recently - not for a lack of topics, but for the absolute abundance of topics. It's hard to know where to start - trying to drink from a firehose and all that. And since I am one of the few people left in Michigan still working (and I would like to keep it that way!) I haven't had time. But today I have a few minutes so...

I note with interest the calls for the resignation of Treasury Secretary Tim Geithner. He is, according to those doing the calling, completely over his head and out of his element, and is making a fool of himself and the Administration with his bumbling.

This may or may not be true, but I have to ask the followup question: "And replace him with whom?"

Ladies and Gentlemen, the fiscal and financial system of this country has been under the control of politicians, professional economists, and bankers for over a century now (some would say longer than that, but it makes no difference to my argument). What has been the effect of these "experts" having that control?

The easiest way to grasp what has happened is to relate it to some fixed point of reference - that is, something that is a known quantity that has a specific value or worth that isn't affected by the whims of markets or economies. I believe a great thing to use as a fixed point when talking about economics is gold. An ounce of gold is an ounce of gold, whether it's a thousand years ago or today. So let's talk about what these "experts" have done by using an ounce of pure 24-carat gold as our measuring stick.

In 1907, the famous Saint Gaudens gold "Double Eagle" coin was first minted, with a face value of twenty US dollars (USD). It contained nearly one ounce of fine gold. So for arguments sake we can say that around the turn of the last century, one ounce of gold was worth approximately twenty dollars. This is not collector value, just the value of the gold content if the coin were melted down. This was a circulating coin in those days - you could actually buy stuff with it.

For this month so far (as of Mar. 23, 2009) gold has traded anywhere from 880 to 960 US dollars per ounce, for an average of USD920 per ounce. So that is the number we'll use for this example. Plugging those numbers into the formula for percent increase: ((new -old)/old)*100 gives us ((920-20)/20)*100, which comes out to 4500%. That is, it takes 4500% more US dollars to buy that one ounce of gold than it did 100 years ago.

That, my friends, is how weak our currency is today, after 100 years of central management by all of these "experts". 100 years of currency inflation. 100 years of booms and busts and depressions and recessions. 100 years of ever increasing public debt, welfare, and bailouts. That is what you have gotten from all these "experts".

So you want Tim Geithner out? Fine - throw the bum out. But all you'll get is another one of the same clowns who has been destroying the value of the currency (and oh by the way your purchasing power and your retirement income) for the last century. Is that what you really want?

Think about it. And remember the oft-quoted definition of insanity: "Doing the same thing over and over and expecting different results".

Oh, by the way, the spot price of gold as I publish this is just over USD950. So it's even worse now than my example!

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