Money, Money, Money

by Don Fredrick, The Complete Obama Timeline, ©2024

(Aug. 16, 2024) — Money is nothing more than printed pieces of paper. People would be better off judging costs based on time rather than money. For example, in the early 1970s a good salary was perhaps $12,000 per year. A new car might have cost $4,000. But rather than saying, “My new car cost me $4,000,” it would have made more sense to say, “My new car cost me four months of labor.”

Today, a respectable salary might be $60,000 per year. But a new car might cost $40,000. The “real” cost of the new car is not $40,000, it is eight months of labor. In real terms, therefore, a new car therefore costs twice as much as a new car cost in the early 1970s: eight months of labor rather than four months of labor.

If a person used to make $4.00 per hour when a pound of bacon cost $1.00, the actual price of the bacon was 15 minutes of his labor. If that person now makes $15.00 per hour and bacon costs $7.50 per pound, bacon’s price is now actually 30 minutes of labor.

When you look at prices in terms of labor needed to buy a product rather than the dollar cost, one can see that the purchasing power of the dollar has fallen dramatically. But the government does not want voters looking at prices in terms of hours of work. It wants to trick people into believing they are “better off” because they used to make $25,000 per year and now make $50,000 per year. The politicians try to convince people they are twice as well off. But consumers may actually be worse off if what they used to be able to buy with their $25,000 of annual income now costs more than twice that much.

The politicians inflate the money supply because it is easier than raising actual taxes. Inflation is actually a hidden tax. They dare not say, “The government is spending $2 trillion more this year than it collects in taxes. Therefore, we must raise your taxes by $2 trillion.” That would result in them getting voted out of office — or riots in the streets. Instead, the politicians (of both political parties) “cover” their deficits by inflating the money supply. They do not raise income taxes. They simply impose a $2 trillion inflation tax and hope to get away with it. They usually succeed in fooling enough people to remain in office.

Kamala Harris is reportedly going to announce her “plan” to deal with inflation: impose price controls. But wherever and whenever price controls have been implemented they have resulted in product shortages. Harris is an economic idiot. Implementing price controls is like breaking a thermometer in the hope that it will keep the temperature from rising. Mandating that businesses freeze prices does not solve the problem. It merely substitutes the problem of rising prices with the problem of product shortages—or causes black market sales with even higher prices.

When the government interferes with the normal supply and demand process of the free market, unscrupulous actors swoop in and take advantage of helpless consumers. For example, assume many people love a particular food product that sells for $5 per can. Because of the government’s inflation of the money supply, the product’s price increases to $7 per can. Kamala Harris then comes along and orders stores to freeze the price at $6 per can. What will then happen? Someone involved in the supply chain process buys all the available cans for $6 each, and then sells them on the “black market” (out of the trunk of his car, for example) for $8 per can. The consumer not only cannot buy the product at $6 or $7 per can, he ends up paying $8 per can! Worse yet, only the consumers who have connections to the black market salesman can even get the product. Other consumers have no ability to buy the product at all! Or, the company that sells the product cannot make a good enough profit at Harris’ mandated $6 per can to stay in business, so it simply stops manufacturing it. The product ceases to exist. That is what will happen if Harris is elected and mandates price controls to “help consumers.”

Do not think this is a poor example. What would happen if Kamala Harris said, “Vote for me and no one will have to pay more than $25 for a ticket to a Taylor Swift concert!”? Swift might simply say, “I am canceling all my concert appearances. At $25 per ticket I cannot afford to rent the concert hall, pay the musicians, pay the dancers, pay the backup singers, pay the staffers, pay for advertising, pay for security, and pay for tour buses, hotels, meals, and insurance. Even if Swift agreed to the $25 ticket price, there is no doubt that someone with “connections” would buy all the tickets at the “frozen” price and sell them at black market prices.

I have been ridiculed by some people because I own gold and silver as hedges against continuing inflation. One leftist recently asked me, “So when the dollar becomes worthless, what will the $ value of gold be then?” implying that gold would also then have no value. He argued that I am a fool for “prophesizing” [sic; prophesying] that the dollar will become worthless. But it does not take a prophet to note that the dollar is becoming “worthless.” It is, in fact, becoming “worth less” every day! A candy bar that used to cost a nickel and now costs one dollar is not now “worth” 20 times as much. The amount of pleasure gained from that candy bar is not 20 times what it used to be. The candy bar is not worth more. The dollar is worth less! How can anyone not understand that simple concept?

It is absurd to assume that as the value of the dollar collapses, so will the value of gold. That is nonsense. As the dollar becomes less valuable, gold becomes worth more in dollars. Smart investors started buying gold when it was $800 per ounce and silver when it was $8.00 per ounce. They are now “worth” about $2,460 per ounce and $28 per ounce, respectively. Their value will go up as the dollar’s value goes down.

Yes, one can argue, “If the value of the dollar drops to astoundingly record lows and the value of gold reaches $50,000 per ounce, a loaf of bread might cost $500!” That is true. But the person who owns gold and silver will be able to buy much more bread than someone who has hoarded only dollar bills.

Obviously, something is “worth” only what someone is willing to pay for it. If, for example, there is a societal collapse because of a war, a carton of cigarettes might be a valuable commodity (and perhaps worth even more than gold) because a person addicted to cigarettes might be willing to trade several cans of baked beans you want for the 20 cigarettes he wants. Anyone worried about an economic collapse would be wise to keep not just gold and silver, but canned goods, bottled water, supplies of propane, batteries, and anything that can be used to trade for food (including cigarettes).

“What goes up must come down” is an old adage that certainly applies to artificially inflated stock prices.Stock prices have gone up for the same reason consumer prices have gone up: the government has artificially expanded the money supply. But stock in Company X is valuable only if that company continues to produce products the consumers want and can afford. Many products that were produced in the past are no longer being made. The companies that produced them have either switched to making other products or gone out of business. But gold and silver have had intrinsic value for thousands of years. Perhaps that will change and gold and silver will hold very little intrinsic value in the distant future. But they will certainly retain their value far longer than paper currency.

Yes, the Dow Jones Industrial Average topped 40,000. That is irrational exuberance. Investors assume the Federal Reserve will lower interest rates by 0.5 percent in September, and now suddenly believe the sky is not falling and that we can readily handle $35 trillion in national debt because the government has been saved by Fed chairman Jerome Powell. Everything is back to normal! The U.S. economy is booming! The dollar is still strong! But the dollar is only a piece of paper, backed by nothing but a government pinky-swear promise that it has real value. It does not.

Oil is considered “black gold” because of its intrinsic value. We would still be living 1840s lifestyles if we had never extracted oil from underground. Our very way of life depends on oil. The government may try to replace paper dollars with “digital currency,” but it cannot replace oil and oil products with wind and solar energy. Plastics and synthetic fabrics cannot be made from wind. Gears cannot be lubricated with sunlight. Oil retains value because everyone needs it and relies on it. Oil is money. Gold and silver are money. Everything else is credit.

The U.S. dollar retains value only because so many nations have used it as the arbitrary medium of exchange. But that situation is changing, with the BRICS nations starting to engage in more trade using currency other than the U.S. dollar. Saddam Hussein wanted gold, rather than dollars, for Iraq’s oil — so George Bush spent American lives to stop him. The Iraq war was not fought over oil. It was fought over how it would be paid for.

Barack Obama and Hillary Clinton went after Libya’s Muammar Gaddafi for the same reason: “You want gold rather than dollars? Then you will pay the price with your life!” But Joe Biden or Kamala Harris or Donald Trump cannot go to war with Brazil, Russia, India, China, South Africa, and every other nation simply because they choose to trade with currencies other than the dollar. The handwriting is on the wall. The dollar’s value is rapidly declining. The U.S. will try to keep it propped up by whatever means necessary (even with war), but it will ultimately be a losing battle. At some point the rest of the world will say, “We no longer want paper dollars backed by nothing of value for our exports. We want gold or some other currency we can trust.” When that happens, the Great Depression of the 1930s will look like a cakewalk.

After all, you can’t eat dollars. Their value is ultimately based only on the American goods and services that can be bought with them. The only way to protect the dollar is therefore to tighten our belts, slash federal spending, eliminate annual deficits, cut burdensome regulations, and start producing more goods and services that Americans and other nations want.