-- Posted Thursday, 27 April 2006 | Digg This Article
When countries were back on the Gold standard it simply meant that money could not be printed at will by bankers or politicians, if the Gold to back this printing did not exist. The principle role of Gold was discipline. Nowadays none of the world’s major currencies are backed by Gold which means an unending stream of new money can and will be printed. The world is an unpredictable place but you can guarantee that Central Bankers will make certain that the paper money you hold as savings today will have a lot less purchasing power 1 year from now ,that is absolutely guaranteed. The Federal Reserve Bank is tasked with maintaining price stability, which is a paradox as the only way this goal can be achieved is by closing the Federal Reserve Bank! The argument is simple, every year they print new money which guarantees the destruction of purchasing power of existing money. Which leads to the market demanding more units of the newly devalued currency for products, which is called inflation which is the opposite of price stability.
Helicopter Ben Bernanke the “inflation fighter” starts his tenure as Federal Reserve Bank Chairman by halting production of the M3 money supply figures. So it is now not possible to measure how much new money is being created which as sure as night follows day will ultimately end up as inflation or price instability!. Good one Ben, this really enhances your reputation as an “inflation fighter”. Helicopter Ben knows how much is being produced the rest of us are flying blind. The Gold market is telling us loud and clear that a lot is being produced.
In Britain we have the same worthless paper money. Here we seem to enter booms earlier than America but we also hit the busts a little sooner. I can now tell you, and prove beyond any reasonable doubt that the British house price bubble is well and truly over and actually peaked in July 2004. Today, the only thing holding it all together in nominal headline terms is the wholesale destruction of the British pounds purchasing power.
As the table below clearly shows in real money, in GOLD STANDARD money terms in July 2004 it took 714.34 ounces of Gold to purchase the average house in Great Britain. If you had decided to purchase this average house in July 2004 on completion day you would have needed to bring 714 American Gold Eagles, Or Canadian Maples, Or Kruggerands to the Lawyers office. Please note that today it costs £163,573 to purchase the average house but back in July 2004 at the peak of the housing bubble it cost £154,299. So today it costs more, but I am stating that July 2004 was the Peak? Am I nuts?
Simple explanation, PURCHASING POWER LOSS due to an excess of printing! Today you decide to sell your average house I have very bad news, you are only going to be returned 457 Gold coins for a real loss of 36%. You have lost 257 Gold coins that is a direct and identifiable LOSS. Looked at another way, if you had decided not to buy the average house in July 2004 and held onto your original 714 Gold coins instead. Today they would be worth 714 X £358 = £255,612 which is a lot more than the average house is worth today.
In Britain we are guaranteed a lot more inflation over the coming months and years as the purchasing power of the Pound is being destroyed by the bankers to maintain the illusion of rising house prices for the masses as measured in ever more devalued Pounds. In reality, in real money the crash is already well under way and stands today at 36% from the peak in July 2004.
I detest trading FOREX which is simply a game of trying to make money by guessing who is devaluing there ever more worthless paper the most or least at any given period of time!. It is pathetic. Last year the Europeans have devalued more which is shown by the Dollar rising. Recently the Americans have devalued more (surprise, surprise M3 statistics hidden!) which is shown by the Dollar falling. The simple fact is that they are all devaluing relative to the only real money Gold.
Price of Average House
Gold Price per Ounce in British Pounds
Ounces of Gold to purchase average house
The following chart shows how many ounces of Gold it takes to buy the average house in Great Britain
To accurately price anything you need to divide its nominal price denominated in a fiat currency by the Gold price in the same fiat currency. The chart above shows, a classic double top followed by a steep decline. We are now in a Bear market and have already lost 36%.
The following chart shows the real price of the S&P 500. A real Bull market from 1995 to 2000 followed by a Bear market from 2000 to 2003 a consolidation from 2003 to mid 2005 and we are now back in a Bear Market the loss from the peak in 2000 to today is approximately 60%. Notice how the MACD has once again rolled over. Also notice how we are actually today at new bear market lows! No Bull in sight on this chart!
In headline spin or bankers, politicians terms the stock market and property markets should hold up and show some gains. In real money and real purchasing power terms we are in a continuing bear market as regards the stock market and a new bear market as regards property. We also have a new Bear market in living standards which I will talk about next time!
-- Posted Thursday, 27 April 2006 | Digg This Article
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