-- Posted Sunday, 6 April 2008 | Digg This Article
| Source: GoldSeek.com
If you want to see how a gold standard would work in practice, look no further than the famous board game, Monopoly. I got the idea for this from Junior Mogambo Ranger (JMR) Rebecca H., who sent an un-attributed quote that ran, "Which paper money held up the longest? Don't know. But the one paper money that held its value the BEST, I believe, is the monopoly money", because "You can still buy Boardwalk and the railroads for the same amount. No inflation with monopoly money."
And that is exactly the way it would work in real life, too, with gold money; under a fixed money supply there is never any inflation in the general level of prices! In fact, most prices would tend to drift down, down, down over time while quality would drift up, up, up, as that is what competition in the marketplace does when paid for by competition between producers to borrow scarce savings, mediated by the banks, which makes only the best projects get funding.
But, I regret to say, we have squandered it all in favor of another of history's ludicrous experiments in Big Government Through Deficit Spending; in this case the federal government borrowed gobs and gobs of money by issuing more bonds for sale, and the Federal Reserve (like the obedient little traitor that it is), created the money so that investors and pension funds and insurance companies could borrow it to buy all the government debt! On margin! Hahahaha! We're freaking doomed!
And it is not just us Americans that are being eaten alive with more and more, and evermore expensive, governments in the thrall of Marxist stupidities, as we learn when Joel Bowman "reporting from the Persian Gulf" here at The Daily Reckoning writes, "I found it interesting to note that the Saudis, perhaps the most expansive central planners in terms of intervening in individual's lives, now spend $55 of every barrel of oil sold just to provide welfare for their citizens. This is a country with the largest reserves of the hottest export around and it requires a price seen less than two years ago just to balance the books! The only thing outpacing the rise in crude price, it would seem, is the over-reaching arm of the planners."
I note from the Economist magazine that year-over-year inflation in consumer prices in Saudi Arabia is running at 7%. Oops!
This brings up Junior Mogambo Ranger (JMR) Patrick, who writes that inflation is hitting the people pretty hard. He writes, "I'm working on the edge of the Sahara desert on a gas processing plant in Tunisia. And whuddya know… People are selling their cars because they cannot afford the petrol, while food and fuel prices have risen dramatically even with government subsidies. The government is really stretching itself to pay for all its subsidies and will soon have to allow prices to rise at a faster rate. I don't think it'll be too long before food riots start breaking out." Yikes!
And to show that it can get worse than that, Mr. Bowman adds that "Venezuela, according to a report someone forwarded me recently, needs an astonishing $97 per barrel of oil to meet Hugo's financial obligations… Iran and Nigeria require something like $75."
Currently, consumer prices in Venezuela are rising at 25% a year, Iran about 8% and Nigeria probably 15%. Oops!
In short, apparently these countries need the price of oil to stay high to pay for their welfare expenses as he notes that "the margin between profit and just covering their expanding welfare buttocks is getting rather thin", which means that they will necessarily be raising oil prices again pretty soon, as inflation in prices is making these government welfare costs go up, which means that oil will be going up in price! This investing stuff is easy!
And if it is welfare that they are providing, then the news couldn't be worse when the Economist magazine reports, "Soaring prices for products like rice and wheat are causing headaches for aid agencies and politicians."
And it will soon get really bad for Mexicans, as if it wasn't bad enough as it is, as Petroleos Mexicanos (PEMEX), Mexico's state-owned oil conglomerate, has admitted to a 6.4% decline in oil production during just the first two months of 2008! Yikes!
You will understand the significance of the seemingly gratuitous use of the word "Yikes!" when you learn that this is the same oil field that reportedly provides the vast majority of Mexico's revenue! And production has been going down and down for years already. But not - Yikes! - at this terrifying rate!
And lest you think that we Americans are going to escape the carnage, think again, as from the Independent.co.uk we get the headline "USA 2008: The Great Depression" with the subhead, "Food stamps are the symbol of poverty in the US. In the era of the credit crunch, a record 28 million Americans are now relying on them to survive - a sure sign the world's richest country faces economic crisis."
So one in 10 Americans is already on food stamps, one in eight residents of Michigan is on food stamps, "double the level in 2000", and it is all getting worse, as "At least six states, including Florida, Arizona and Maryland, have had a 10 per cent increase in the past year."
And with the monetary spigots wide open in response to the terrible consequences of the fatal failures of the Federal Reserve descending upon us, taking the concept of "deluge of money" to whole new realms, it will just keep on getting worse. And worse. And worse.
Which brings us to gold and silver. Ahhhh! I feel better!
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Editor's Note: Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it.
The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and other fine publications. Click here to visit the Mogambo archive page.
-- Posted Sunday, 6 April 2008 | Digg This Article | Source: GoldSeek.com
