Sunday, August 10, 2008

The Yellow Brick Road Part Three

While the price of crude oil has risen in terms of these national currencies, it remains relatively stable in terms of gold. Crude oil is not becoming intrinsically more expensive, rather, the purchasing power of these national currencies continues to diminish. In fact the price of crude oil has remained essentially unchanged for decades when measured in terms of gold. Measurements of other commodities against national currencies and other precious metals will resemble this chart.

When measured against gold, most western currencies saddled the the high cost of maintaining a social welfare safety net for their populations are losing purchasing power due to government's deficit spending. In the United States that trend is exacerbated by excessive military spending relative to other countries. If Asian currencies were charted the result would demonstrate a less extreme loss of purchasing power due to cheap labor, higher savings rates and relatively lower expenditures for military and social welfare segments of their economies.

When measured against other western currencies the U. S. dollar is losing its purchasing power at a faster rate. The Rainmaker believes that much of the discrepancy in relative purchasing power between the dollar, pound and euro is largely due to two factors. First is the incredibly bad PR associated with the current American Administration. Second is the fiscal policy of the United States that is incurring record deficits to simultaneously fund two wars, entitlements and the financial sector bail out of the week.

What's next?

Candidly, it's probably going to get worse before it gets better. It will take time to replenish all the money collected and misspent by a succession of administrations out of the Social Security and Medicare Trust Funds. These surpluses have been squandered over more than a generation. That bipartisan breach of fiduciary duty by our elected leadership can't be fixed over night. Given that not one of the major candidates for President throughout 2007 and so far in 2008 has been willing to admit there is a current problem is not cause for optimism. These problems will probably take as long to fix as they took to create. And, the repair work won't even begin until our elected leaders are willing to admit that there is a problem.

How can we protect ourselves, our families and our livlihoods?

The advice is deceptively simple. Work hard, reduce risk, get out of debt, save and put part of your estate into precious metals. Work with your financial advisor to design a personal strategy that maximizes revenue, reduces risk exposure, increases savings and diversifies a portion (how big a portion you should discuss with your financial advisor) of your estate into extractive industries as well as gold, silver and platinum. Follow the yellow brick road.

1 comment:

jdc1958 said...

Louis,

Great Blog.

Throughout history, man has been on a quest for gold, silver and other precious metals and stones. Why? Because they are rare, and happen to be beautiful. However, none of these items is essential for life.

I would offer another medium of basis for currency: Sunlight.

Consider that everything we produce (including the mines that harvest precious metals) is ultimately a product or either current sunlight, or past sunlight.

Current sunlight grows crops, enables human life, provides energy which is converted into production of bio mass and work (probably best expressed in joules). Past sunlight is measured in the extraction and production of ancient bio mass such as oil, tar and bog.

Keeping in mind that all of the gold ever found can be neatly housed in a building half the size of the Smithsonian Air and Space Museum, you quickly see why gold is trade in ounces. The problem with gold is that some nations have zero gold, while others happen to sit on comparatively rich resevores...which mean nothing about their respective joules.

I propose an annual measure of a nations total joules divided by their currecy in circulation. Your premise of "work hard" is rewarded with a comparatively strong currency. One could tie in social and environmental responsibility, but those things are relative and subjective unless the world decides on a comon standard for each. Of course there are problems to be solved using such a standard, but they can be solved.

Sounds like David Rockefeller's one world currency right? I think we are headed in that direction in some form at so point anyway. (Fundementalists are shuddering as I write!)

I guess that is my response to the notion of gold being a standard. It is a standard for mineral wealth, but is not a true standard of human accomplishment.

Ah, I mentioned social responsibility. The American government rearely thinks ahead more than 8 years. This is due to the "on my watch" notion that most Presidents have. Those things which do not happen "on my watch" are back burner issues at best. Our Social Security and Medicare ills are only going to begin to receive the attention they deserve starting with the 2012 election. We are close, but no fix in in sight.