David posted several good articles today and “Dagney” raised an excellent question in response to “Whoever has the Most Gold Wins”.
Dagney asked: “What does it mean in lay man’s terms please?” Let’s answer Dagney’s question by looking at purchases a little differently than normal.
Be patient with me for a few paragraphs, I assure you “the destination is worth the journey”. I will give you a very direct and meaningful answer.
All our lives we have purchased goods and services with dollars. Since World War 2, the world has relied on the US$ as the reference for international trade. But money issued by governments has for decades been steadily decreasing in value, as may be seen in its ability to buy things such as gold and oil.
David points this out with a traditional graph in “You just lost 3.7% of Your Savings in April”. I previously showed a graph comparing the value of the US$ before and after the creation of the Federal Reserve System (Systematic and Intentional Destruction of Wealth).
The decrease in value of the money, increase in price of the commodity, is attributable to Federal Reserve printing and distribution of legal tender independent of the production of goods and services by industry.
Price inflation is a recognition of Value within a market. Raw materials, manufactured goods and scarce commodities have Real Value to consumers. They are pursued by more and more Federal Reserve notes.
Let’s look at a trade of goods where we remove the dollars from the transaction. Let’s look at how much oil we could buy for an ounce of gold.
Look at the Bloomberg analysis for gold and oil 2008 – 2011.
For most of 2009, 2010 and 2011, where the price of gold and oil (in dollars) is “skyrocketing”, the ratio of gold to oil is fairly constant. An ounce of gold will buy approximately 15 barrels of oil.
This Bloomberg analysis mentions some discrepancy from this trading ratio during the market collapse of 2008 (the start of our extended recession) so let’s look at the long term and see what we find.
For the ratio of Gold to Oil since 1946, the average turns out to be 15.562 barrels of oil per ounce of gold. Or 1 ounce of gold will buy about 15 ½ barrels of Oil on average.
… nearly identical to the ratio for 2008 – 2011.
Since the end of World War 2, when the US$ was selected as the world reserve currency, these commodities have remained stable RELATIVE TO ONE ANOTHER while the governments of the world have been systematically destroying their money.
So … What does this mean to me and to you… ?
It means that governments steal our wealth when they convince us to store it using their national legal tender.
If you store your wealth in gold and silver rather than paper (the US$, Federal Reserve Notes) you will be immune to the manipulation of the national money and able to afford fuel for your vehicle and food for your table. Access to fuel and food are good things, yes ? … say yes ! )
The people who own gold “win” because they will be able to travel, buy food and survive.
Others won’t … It’s that simple !