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August 25, 2016

A personal note. . . 

   We have paid the rent on this wee corner of the internet through May of 2017.  Age and bad eyesight might put us out of business before then.  But keeping it relatively up to date, particularly with items and commentary on the terrible mess governments have made of trying to become too big for their britches by taking on un-payable debt and creating a phony form of "money", demands that we spend a bit of each day keeping tabs on economic trends.  It's a self-assigned occupation.  

    The primary goal is to keep us out of the poor house.  History is filled with major monetary screw-ups and we want to be in as safe a position as possible with our modest resources when the next currency calamity occurs.  Our hope is a reader or two might find encouragement to look into the situation on his/her own. 

     We and the Missus faced a minister and said "I do" in August of 1948.  As far as we can tell that puts us in a marriage longevity category reached by barely one percent of married couples.  This does not entitle us to any award or even any particular recognition, although we aim to throw a really big party if we can keep the momentum going two more years to claim 70 years as wife and husband.  

      Here's a brief commentary about that long-ago year when we paid the top rate in FICA taxes....$54.00 per year.  First class stamps were 3¢ each and a loaf of bread set us back 14¢.


Several years ago essayist Frank Chodorov described his financial circumstances when he married in 1909. His salary was $18.00 per week "and my wife managed to pay all the household bills and save a few dollars every week from this salary. But, then, as she has reminded me no end of times, steak was 18¢ a pound in those days. And I myself can remember making my midday meal on a mug of beer and a liberal 'free lunch' sandwich for a nickel."

Imagine paying a nickel for a mug of beer and a sandwich! One buck could buy lunch for twenty days! 

Thirty-nine years after Chodorov and his lady tied the knot my bride and I set up housekeeping. Inflation, generated by two world wars, had taken its toll. The year was 1948 and the price of bread had risen to 14¢ a loaf. The Consumer Price Index was 7.1%, having dropped from double digits the year before, and a housing shortage had driven the price of an average home to the $12,000.00 to $13,000.00 range. Whereas a new car could be purchased for $600.00 before World War II the price had leaped to $1,200.00 or more by 1948. We settled for a tiny rental apartment and a 9 year old Ford.

My annual salary was $3,900.00. Quite comfortable in the era of the 3¢ first class stamp and 60¢ admission to a first-run movie. I paid the maximum Social Security tax, $54.00 per year. A television was out of the question that year. Besides, WBZ-TV in Boston had just started telecasting in 1948 and the picture was somewhat "snowy" in our town, forty miles away. Only 10% of American homes had TVs in 1948, but by 1950 we were able to buy a used Motorola table-model TV and observe the medium in its black and white infancy. 

In the last sixty-eight years we have seen the buying power of the dollar of 1948 drop to under a dime. I find myself constantly dividing today's prices by ten to compare them, roughly, with prices in the year of our marriage. By that measure the 5¢ cup of restaurant coffee of 1948 should be about 50¢ today. It isn't. It's more. An average sized new car should be selling for around $13,000.00, but it's not. Dealers will say today's vehicles are so far advanced over cars of the late 1940s that there is no way of comparing prices. But I recall a new 1948 car as being a fine machine that could be maintained quite cheaply. It's true they didn't have built-in entertainment centers and climate control of the sort available today, but they were comfortable and sturdily built. I'd rather be in a collision in a 1948 sedan than one of the miniature SUVs on the streets today.

In the early days of our marriage we could take a child to see a family doctor knowing the office visit would cost $4.00. In today's dollars a routine office consultation should be $40.00, but. . . 

This raises the question of where the dollar is headed. What will the young couple being married this year experience on, say, their Golden Anniversary? Will bread be $40.00 a loaf then? It may not matter if the average salary is $7,500.00 a week or more. But with money assuming newer, smaller dimensions as it threads its way through the maze of inflation, how can one rationally plan for the future? It's like trying to draw plans for a building without knowing how many inches there will be in a foot when construction begins.

Sixty-eight years into our marriage finds my wife and me still fretting about our financial safety. Every dollar we have is dwindling in purchasing power. We have been swindled. And when we search for the swindler the clues lead us directly to the political leadership in Washington. Many people say conniving banks are the real culprits, but it is the U.S. Congress that has authorized decades of monetary inflation with its never-ending deficits and constant expansion of costly central government. It gave its money management authority to the Federal Reserve and said, "Do what it takes to keep unemployment low." 

A reader may say, "Ah, but you and your bride are so much better off today than you were when you married in 1948. Technology has provided all kinds wonderful aids. Medical advances are prolonging life. A vast array of good choices await you at the grocery store, and WalMart offers an abundance of things from all over the world."

It's true we no longer hang the wash on the outdoor clothesline. It is also true that advances in medicine are prolonging life, but where is the advantage of a long life if it only allows the tentacles of Alzheimer's or dementia more time to establish a foothold? And how much better off are we by paying high prices for utilities? Our income does not increase at anything approaching the rate of inflation. And today's $4.00 loaf of bread doesn't taste any better than the one we bought for 14¢ in 1948. 

I think society made a mistake accepting the government's inflation swindle, but it was hard to resist. Early in the process it created the illusion of wealth. Salaries crept up through the years, sometimes in advance of price rises. Often, not. But we also observed confusion occurring when we were taught we could "borrow ourselves wealthy." 

Upon beginning our long life journey together in 1948 neither of us could imagine what life would be like in the distant 21st century. That was the stuff of science fiction novels. We had a vague feeling that the future would be pleasant and happy, and that the World of Tomorrow exhibit we saw at the 1939 World's Fair was probably a reasonable prediction of things to come. In fact, technology was producing new things all the time. Only two weeks after our return from our honeymoon CBS introduced the LP record. Suddenly 78RPM discs began to look antique. Also, the tape recorder was winning a race with wire recorders, and the entertainment world was buzzing about the exciting new medium - television. As vaudeville stars rushed into radio in the late 1920s and '30s, radio stars of the late 1940s began casting an eye toward television. 

Science delivered on the promise of technology in our lives, but the Washington money swindle kept us in a never-ending race to stay abreast of constant price increases. "A dollar just doesn't go as far as it used to," we'd often hear. Our entire married life has been spent in the Age of Inflation and there was not much we could do about it. 

So, today we tell jokes about our 1948 $75.00 per week income. "So much money," I'd brag, "my wife didn't have to take a job." But our first child arrived a year later and she had plenty to do. 

Under a system of honest money $75.00 would still be a meaningful amount of money. It's a pity we let inflation all but destroy the value of the dollar. What in the devil were we thinking? 

John Wrisley, August - 2016. (An update of a piece written in 2008)

The Royal Bank of Scotland has become the first bank in the U.K. to impose a negative interest rate on depositors.
    The enthusiasm for negative interest rates is spreading .  Should we in the U.S. be concerned?

      "Experts are warning that the latest move by RBS would 'set alarm bells ringing' among small businesses and ordinary customers. The stage is set for a glorious and long overdue old-fashioned bank run if the BOE ventures to push rates into negative territory." NEGATIVE RATES

   Would you pay your bank a fee to hold your money?  This is a far cry from the old system in which you put spare cash into a bank account and received some annual compensation from the bank for doing so.  Remember the oldtimers who used to speak of the "miracle of interest compounding?"  No one mentions that any more.     

    Today a simple checking account might pay some tiny interest rate (less than 1 percent, annually)  if one maintains a substantial  minimum balance.  Otherwise there are plenty of charges for a variety of services, including overdraft insurance.  

     With the specter of negative interest rates entering the picture the day may come when banks will be falling all over themselves competing to offer the lowest charges to accept your deposits.  Coupled with the push for a "cashless society" what are consumers going to do?  

      Tough call.  If too many people rush to take cash out of their bank accounts, on the grounds it's cheaper to keep it in a shoe box at the back of the closet, the supply of paper currency would quickly run out.  And there's the downside of possible theft.  A shoebox full of cash may not cost anything to hold, but the danger of it being heisted is high.  

       So, what'll it be?  The loss of purchasing power through negative interest rates on funds deposited in a bank, or the shoebox or mattress at home?  

        At the moment the Royal Bank of Scotland is imposing negative interest rates chiefly on balances held by smaller businesses.  When it spreads to ALL deposit accounts there may be an uproar....except in Scandinavian countries where people embrace the concept of cashlessness and inflation.

Innocents and Money

Mark Twain meets the Portuguese reis.

(We composed this a year ago to demonstrate to a friend how gold money retains purchasing power over long periods of time.  He didn't get it.)

   Mark Twain’s “Innocents Abroad” is the fascinating journal of his travels with a party of seventy-six wandering Europe and the Middle East in 1867. Upon arriving in Portugal one Mr. Blucher was so glad to be on solid land once more that he invited nine of the party to dinner at the town’s principal hotel. They enjoyed a fine meal, good wine, and cigars all around—but when the bill arrived Mr. Blucher nearly had apoplexy.

   “Landlord,” he said, “this is a swindle. I’ll never, never stand it. Here’s a hundred and fifty dollars, Sir, and it’s all you’ll get. I’ll swim in blood before I pay a cent more!”

    What disturbed Mr. Blucher was the magnitude of the charges. For ten dinners the price was 6,000 reis. A charge of 2,500 reis was posted for cigars, and 13,000 for wine. What Mr. Blucher did not know was the exchange rate of Portuguese reis for U.S. dollars. The proprietor sought someone on the premises to help him translate the numbers to U.S. money.

    The dinner charge of 6,000 reis was $6.00. The cigar bill totaled $2.50. Eleven bottles of wine came to $13.20 for a grand total of $21.70 for the celebratory dinner for ten.

    The bill could have been paid with a U.S. $20.00 gold coin, plus a silver dollar, a silver half-dollar, and two silver dimes. Those coins today would be worth roughly $1,100.00 in terms of their metallic content.

    Could a party of ten today find full-course dinners in a nice restaurant for about $110.00 each? Very likely.

    This anecdote from 148 years ago underscores gold’s store-of-value attribute, conveying purchasing power over long periods of time.

(Written: August - 2015)

Investing in Money 
Talk about your conflicting signals!

   In the good old days financial giants such as J.P. Morgan understood the role of money.  In their view gold was money while paper notes, bonds, etc., were merely IOUs...promises to pay at some future date.  In fact, Mr. Morgan is on the record saying "Gold is money. Nothing else."

     He clearly meant that paper IOUs were a promise of money payment but could not simultaneously  BE money.  

      When Morgan made the comment the U.S. mint price per troy ounce of gold was $20.67.  When the U.S. stopped redeeming its notes in gold held by foreign trading partners the mint price was $42.22.  Today the market price is a little more than $1.300.00.  This represents a terrific drop in the purchasing power of the paper dollar.  (Note:  Most "dollars" do not exist in paper form.  They reside as electronic digits in the bowels of computers.)

       Comes now this question:  Should one invest in gold today in the hope its price will soar?  

        A boatload of emails lately advises us that we're missing out on big profit if we don't buy gold now before the price goes up to $5,000.00 or $10,000.00 or some other lofty figure.  

         It's true that one can make a profit by exchanging paper money for gold at a lower price and selling the gold for paper when and if the price rises.  But since the price of gold almost always soars on the wings of paper dollar price inflation, how does one make an actual "killing" when the dollars received in the future sale won't buy nearly what they would when the gold was bought?  

         Our conclusion is we will not see $5,000.00 gold unless price inflation rises sharply.  Gold is a first rate barometer when it comes to measuring expectations concerning currency inflation.  At the moment, however, the Federal Reserve can't even get the inflation rate up to its goal of 2 percent on an annual basis.  

         So, we're with ol' J.P. on this one.  Gold is money because it serves the classic function of money....it is 1/ It is a store of value, 2/ a standard of measure, (a troy ounce is always 400 grains), 3/ it is a medium of exchange recognized everywhere in the world.  

         As sought-after as paper money is it can't offer the attributes of money the Founding Fathers had in mind when they drew up the U.S. Constitution.  Today's fiat currency  fails miserably in conveying purchasing power over long periods of time.  For example, since leaving the remains of the gold standard in 1971 the U.S. dollar of that time has declined to a purchasing power of 18¢.

          When it reaches zero it will be nice to hold some real money....gold. 


ITEM:  Publicly funded National Public Radio has announced that it will be closing its comments sections in a bid to “move the conversation to social media,” following the lead of many left-wing news sites in doing so. In a blog post by NPR public editor Elizabeth Jensen, she said that although the decision is “sure to upset a loyal core of its audience,” the company would now prefer to “let social media pick up the slack.” Scott Montgomery, the managing editor for NPR digital news cited the reason for the move as the company’s need to engage more in social media.  NPR Doesn't want YOUR opinion.   

  National Public Radio (NPR) ought to provide political coverage in an unbiased way, but it can't.  Its staff is composed of people whose opinion lean left despite the fact that its funding comes chiefly from taxpayers and donors of all political stripes.  Whether non-leftist donors will respond as generously as usual to the plea for money in the next "beg-athon" remains to be seen.  

  Since 1971 the purchasing power of the dollar has sunk to 18¢.

"The new money substitute, which we’ve lived with for 45 years, is a fraud. A dollar in 1971 is worth about 17 cents today. In other words, it has lost roughly 80% of its buying power. Had you been counting on it to preserve the value of your work from the previous decade, it robbed you of everything from 1960 to 1968. The phony dollar has misled an entire generation into spending money it didn’t really have… doubling or tripling its debt-to-earnings ratio, and shifting more and more of its real wealth to the least productive people – the Parasitocracy."   Zero Hedge    The world is agog with election year politics at the moment so this excellent article will probably get little notice.  It's an excellent piece that explains how the rich get richer and you don't.  It all has to do with the devilish problem of irredeemable fiat currency, that totally unworkable measuring stick of financial transactions over time.  As it points out - the dollar of 1971 now has purchasing power of about 18-cents.  (!)