Sybil's Star

Social Security Armageddon

2025-06-22T07:14:00.000-07:00

A friend recently sent me a link to an article about the precarity of the US Social Security system. The headlines read:

Social Security’s Finances Erode Further, Risking Benefit Cuts

The nation’s key program for retiree benefits continues to see financing shortfalls. Unless Congress acts, those drops could lead to payment cuts in eight years. [NYT 6/18/25]

Photo courtesy Pixabay

Of course it scared her. She noted: “Not good news for us old folks.” I had to respond: The solution is either to find remedies or go broke.

I am not as worried as my friend. I don’t think any politician will be willing to reduce payments to current seniors receiving benefits or to those soon to receive benefits. That would be suicide. (Voter participation by age; Voters by age group Table 1)

On the other hand, I do hope that eventually (actually sooner rather than later) our legislators will have enough sense to do one or more of the following (and it will need more than one):

Raise the retirement age for most categories of older workers except a few that work in jobs that are physically demanding; and do it for generations down the line, not the ones coming up to retirement age in five years. This is in order not to penalize those who are counting on benefits soon, and to insure that the younger ones will have time to prepare themselves or find a source of help.
Reduce the payments for more wealthy seniors.
Increase the threshold for taxation of higher salaries.
Find ways to get people to put more in their 401(k)s.
Enlarge the 401(k) and other retirement programs, or create new types of portable or individual retirement savings accounts for people who don’t have them through their employer.
Teach people at a young age to save more money instead of spending everything they earn. They should be able and encouraged to establish an independent retirement fund for themselves. Most people, especially those who are on the lower salary levels (i.e. those who need it most), believe they are going to be covered by Social Security in their later years and just don’t know how (or want) to save money. And yet it is possible even on a tight budget. Small regular savings-accounts contributions will increase in value dramatically over time with compounded interest. And for those who truly can’t seem to save a penny because of family obligations or other difficulties, the focus should be on improving professional skills and hence one's financial situation (fun and yet still very instructive videos about budgeting and getting oneself out of debt and into financial security).
For the truly indigent and needy individuals, pass legislation encouraging local nonprofits to expand their aid programs and to function in a more targeted and community-oriented way.
Educate youngsters – and adults – about the dangers of the overuse or abuse of credit, and about the terrible losses that can occur due to the punitive (and rightly so) expense of not paying revolving credit accounts within the first month or so. (This is compound interest in reverse times ten.)
Other options that do not involve increasing government intrusion into the marketplace or inventing unconstitutional legislation, but that would cure some injustices in the status quo. (More on those another day.)

That may sound hard and/or unrealistic, but that’s what I believe must be done. Do I think it will be done? I’m not betting on it.

Updated M&M Inflation Index & Graph - 2025

2025-01-02T14:44:00.000-08:00

2025 is already upon us, and it’s time to update the M&Ms Inflation Index. Like some of you, I remember when a 1.69 oz packet of M&Ms was 5 cents. Yes, that’s back in the 1950s. Today, the price of that same packet has gone up to $1.79.

For you mathematicians, that’s a whopping 3,480%! And that means the dollar’s purchasing power has gone down in the opposite direction, maybe something approaching the same amount only in reverse.

M&Ms are made by the Mars Company. (By the way, the Mars family has quite an interesting history.) They have made it a point to offer the 1.69 oz packet since the company began to make them, come hell, high water, or monetary inflation. Of course they also understood that a variety of sizes and prices can please the public, so you find their products in a plethora of different packaging.

So for the economists among you, here below I have updated the chart for the 1.69 ounce pack:

A professional economist friend of mine, Peter Earle at AIER, explained that price inflation has certainly contributed to the uptick in our favorite snack. In this particular case, however, there is another factor: cocoa bean farmers are having terrible problems with their crops, especially in Africa where most of them are produced.

Here’s a chart giving the price of cocoa for the last five years, from TradingEconomics.com:

The price has risen about 340%in the past year and a half – quite extraordinary, and most probably not just due to monetary inflating of the money supply. J.P. Morgan has what I judge to be a reasonable explanation of the cocoa phenomenon. They describe the causes of the increase in the price to be mostly due to local economic, political, social, and market pressures, not linked directly to monetary inflating, other than on the retail downstream product level. One supposes that the local and international devaluation of money through monetary inflating could indeed bear some responsibility, but it's difficult to determine how much.

We’ll just have to see, if and when the farming problems are solved, whether the price goes down. Cocoa prices have indeed subsided a bit, but on the retail M&M level will the reduction be reflected in your M&Ms? What’s your bet?

Given the market factors in the price of chocolate, our M&M Standard is perhaps imperfect. Dare I end this by stating that one of the best barometers to use in determining the loss of value of a currency is gold? Here is Kitco's gold chart showing how many dollars you get per ounce:

I also like this one from PricedinGold.com, showing how many milligrams of gold you can buy for a dollar. It really hits where it hurts. And for this you can blame the indebted-dollar farmers at the Fed and the distributors of these inflated and borrowed dollars: Congress.

US Gold Reserves - Short 20th Century history

2024-04-04T16:56:00.000-07:00

What trajectory did the US gold reserves follow in the last century?

Below is a World Gold Council chart that might be accurate, although there is some debate today about exactly how much of the US gold reserves are accurately accounted for. Some say a portion of it is no longer there, some say that a percentage has been used in financial transactions that would involve claims to some of it. But the chart is probably not far off.

You can see that gold began leaving the country starting in the mid-1950s. By the end of that decade a few wise financial advisors were recommending investing extra savings – i.e. savings one could afford to risk – in numismatic gold and gold stocks. (It was illegal to hold gold outright.)

The reason was that the gold standard kept the official dollar price at $35, but there was so much dollar inflating going on that foreign countries were smart enough to get gold instead of holding onto dollars (which dollars had been received in payment for imports), and this was causing the unofficial market gold price in dollars to rise.

That’s why in 1971 Nixon probably looked at a similar chart and finally said stop, no more, we’re “closing the gold window.” And that’s when the dollar price took off, as wise advisors had predicted it would. More accurately, that’s when the exchange rate for dollars plummeted and price inflation in the US began to explode. (Yes, price inflation can be late to the party, but it always follows a period of monetary inflating.)

(The yellow line represents the dollar price of gold.)

Note that this chart stops in 2005. Here below is the chart from Kitco for the last three days. The dollar price is up to $2,290 as of this writing, even touching $2,304 for the first time in history. Not a bad investment, right? (But I’m not an investment advisor.)

Gold always seems to reflect the reality of the value of money, even if it no longer is officially an element of any country’s monetary standard. Who said the gold standard is dead?

What is Stagflation?

2024-04-01T08:38:00.000-07:00

Someone recently asked me to explain the term “Stagflation."

Some of you probably remember the Nixon years, the early 1970s. This is the period when Stagflation was flagrant. It’s simply the combination of two words, stagnation and inflation.

Everyone seemed shocked that both could occur at the same time. This is because back then (and still in the minds of a few today), a Keynesian theory called the Phillips Curve was in vogue. It said that “inflation and unemployment have a stable and inverse relationship.”

https://www.investopedia.com/terms/p/phillipscurve.asp

But in fact this turned out not to be true, since in the early 1970s we had high price inflation and high unemployment combined with low GDP, which by itself is often described as stagnation.

The term “stagflation” was first used by an Englishman, according to this website. The article gives such a good description of the issues involved that I really think you would find it interesting.

So what is the real reason my electric bill is going up?

2024-03-27T13:35:00.000-07:00

My electric bills have been going up for the past few years, so I decided to analyze the data to figure out what was changing. Was it the consumption? Was it the per kWh charge? Was it the taxes? Maybe the service charge(s)? Or something else?

The consumption was pretty predictable and regular. Interestingly enough during these inflationary times, the per kWh charge was exactly the same over an eight year period. Taxes and other state charges didn’t seem to be modified very much, and the monthly service charge was also unchanged.

So where is the culprit?

In California, they have come up with what was supposed to be a credit to our account due to the use of renewable energy. They must have thought that renewable energy sources would provide less expensive electricity.

Starting in 2016 in our case, this line on the bill was a very tiny credit. But as time has gone by, that column has morphed into a charge climbing steeply. See the result on my chart below.

This supplemental charge is calculated as a percentage of total consumption multiplied by the kWh price, so it moves up and down with changes in consumption. But you can still see the trend. Where it used to be a negative number, it has now reached a level of about 30% of the kWh rate, and hence of the whole bill.

This “Energy Cost Adjustment” has become a way for the company to increase our price while maintaining the per kWh rate. Perhaps they’re just trying to deal with California’s crazy laws, but it’s still VERY SNEAKY, don’t you think?

So is it just an underhanded way of increasing the price? Or did everyone simply misjudge the cost of renewable energy?

Updated Proprietary M&Ms Inflation Gauge

2024-03-24T14:42:00.000-07:00

I’ve made some revisions to my M&Ms inflation gauge, this time basing it on calculations of the “per ounce” price rather than per packet price, while still expressing the chart values on the historical price of a 1.69 ounce packet.

Somewhere I read that the M&Ms company claims they always sell the small packets at 250 calories per packet. I have some issues with that, because I have noticed over the years that the size of the packets on sale seem to vary from year to year. However, assuming it is true, that would be the 1.69 ounce packet, according to the linked website. So I have chosen that size to be the anchor for this new graph.

You will note that I’ve left lots of room for future price inflation – and for my own stick-to-it-ive-ness given my advance age....

Enjoy! Hopefully along with a packet of Peanut M&Ms, which are my favorite! (Although the chart is based on the old classic.)

What is a Flight from the Dollar?

2024-02-21T17:35:00.000-08:00

A friend asked what a “flight from the dollar” looks like. I can certainly give my understanding expressed in easy-to-understand language.

A “flight from the dollar” happens when the citizens, or even the global financial system, rejects the dollar as a store of value. Here’s a little history to explain the context.

In the late 1800s, a dollar could be exchanged for 1/20.67 of an ounce of gold. This was the “gold standard,” whereby a dollar was “worth” (i.e. could be exchanged at any bank for) 1/20.67th of an ounce of gold. The banks accepted freely any amount of dollars in exchange for gold at that rate. The standard, as long as it remained in place and was respected, helped banks maintain a safe amount of reserves, a conservative amount of loans (made with real savings), and well-backed credit advances (i.e. credit creation based on commercial paper such as bills of lading and the like); and it kept the economy on a relatively even keel. The fact that every bank had to give out one ounce of gold for $20.67 in paper money kept them – and the dollar – honest, so to speak.

In 1913, the US created its first central bank, which became the arbiter, instead of private banks, of the amount of credit creation that would take place. The original rules applied by the central bank were pretty sound. Credit loans to banks were based only upon commercial paper. However, in the longer term the rules changed. Within a couple of years the central bank began to do what central banks have done for centuries, i.e. they began creating extra additional credit, which the government used to cover wartime and other expenses.

The first episode of inflationary credit creation (what economist Edward C. Harwood labeled “inflationary purchasing media”) appeared during World War I. As the US central bank began to allow the expansion of credit above what was prudent (according to Harwood), the government spent it on the war effort. When the war was over, the central bank tried to contract that credit, which forced the country into something of a recession in the early 1920s.

Then during the subsequent years Harwood noted that a lot of “inflationary purchasing media” had still not been cleared from the system, which was maintaining prices too high and encouraging bubbles in real estate (in Miami at the time), and in the stock markets. By 1928-29 he began to warn the public through articles published in financial journals that the previous monetary expansion was still in the system, which would probably end in another contraction.

Indeed, a peak was reached in 1929. The central bank noticed the problem and tried to correct the imbalance by contracting the money supply. It was the right thing to do, because the excessive credit did indeed need to be withdrawn. Was the contraction too quick? Was the timing wrong? No one really knows, although multiple theories exist. At the same time, the government put in place some very strict trade policies that caused complications in the import-export markets, and we got the 1929 crisis, which extended several years into the 1930s.

In 1933 Roosevelt, in an attempt to save the gold standard, decided one day (literally) to force people to turn in their gold so that he could devalue the dollar down to 1/35th of an ounce. He explained that he didn’t want private “speculators” to profit from the devaluation. He also started the country on a centralizing-regulatory-socialist binge with his New Deal policies. Ownership of gold was outlawed. Much money was wasted in the various efforts, and the economy didn’t recover until the 1940s. By then the second world war was brewing.

When the soldiers got home in 1945, they went right to work and got the place up and running pretty quickly, thereby probably absorbing the excessive credit created for the war effort. Given the difficulties experienced in the 1920s, the Western World decided that they needed to fiddle with the gold standard again. Global officials met up in Bretton Woods in New Hampshire and decided that the world would go onto a modified dollar-gold standard, i.e. the dollar would stay on the standard at 1/35th an ounce, and the rest of the world would use the dollar in international transactions. Somehow, they thought this would be better than a plain gold standard.

This plan gave the US both a tremendous advantage and a tremendous disadvantage. The advantage is that nations needed to exchange their exports for dollars in order to do business, and some countries’ banks also bought tremendous quantities of US bonds as capital assets. Therefore the US could print just about whatever it wanted, and the dollars flowed around the world and never came home to roost. It's called “seignorage.”

The disadvantage is that it is the equivalent of giving a credit card to a 16 year old.*

It worked pretty well at first back in the early 1950s, but lavish money printing soon started again, creating another bout of creeping price inflation in the US. After all, it is not easy (or perhaps it’s impossible) for central bankers and politicians to determine with precision the amount of dollars that should be created and shared to maintain the Bretton Woods global monetary system. In around 1959, Harwood and others began to notice that in spite of the Bretton Woods fix at 1/35th of an ounce per dollar, the “price” of an ounce gold in dollars was increasing above $35 in certain markets. In other words, people were realizing that the dollar was losing its value. That’s when Harwood started getting people onto gold numismatic coins, gold stocks, gold “annuities,” and Swiss financial instruments, some of the very few ways to invest legally in gold and safe foreign assets.

This state of affairs lasted far longer than anyone thought possible, until 1971. France was getting wise about the loss of value of the dollar, and De Gaulle began asking for his nation’s gold at the official $35 price. Gold at $35 had become a good deal. It all came to a halt when Nixon “closed the gold window,” i.e. refused to pay out gold for dollars. (See this for a detailed explanation.)

Since then, even though in the mid-1970s Americans could start owning gold again, the world has been on what is called a “fiat standard,” i.e. no standard at all. Over the rest of the decade, gold went from $35 to $800 in 1980, 23 times its previously fixed exchange rate.

That’s a flight from the dollar.

Even though no longer in an official monetary role, gold still remains a good barometer of the value of currencies around the world. The dollar has continued to decline, and today the ounce of gold costs around $2,026. Yes, the gold exchange rate is “volatile.” But in fact it is not gold that is volatile. It is the paper currencies. After all, smart people watch economic policy and events, and when things start to get frisky, they start looking for ways to preserve the purchasing power of their money. The increased demand creates exaggerated swings in the “price” of gold. But in fact the one thing that remains constant is the underlying, on-average, longer-term stability of gold’s purchasing power.

And the “price” of gold is one way you can measure the “lost value” of the dollar.

_____________________

* Today the US debt is over $34 trillion and climbing rapidly. This is WAY more than US production can sustain (about 145% of GDP). It is also especially dangerous when price inflation and cheap public borrowing sets in and when the Fed (rightfully albeit somewhat late) decides to take corrective action via higher interests rates. Over the past year or so, the yearly interest rate on the debt is now up to $500 billion, which is about 2/3 of the entire annual US military budget. (And here’s another interesting chart that I hadn’t seen before.)

Measuring Economic Freedom vs. Human Freedom

2023-03-11T14:50:00.000-08:00

The Fraser Institute's study of economic freedom in the world for 2022 (data from 2020) has just been published. As usual, the stars of the show are Hong Kong and Singapore, with New Zealand not far behind. The US is at seventh place.

One might ask: How can an island that is completely under the thumb of a Communist nation be the most free nation in the world? And how can a country (New Zealand, No. 4) be considered free if its people just passed a law forbidding anyone born on or after January 1, 2009 from buying tobacco, ever? Not just before they reach the age of 21, but forever. (Good luck with that....)

Free image from Pixabay.com

Okay, I get the measuring sticks used by this study. They are purely economic. The measurements concern:

Size of government
Legal systems and property rights
Sound money
Freedom to trade internationally
Regulation

But aren't there a few more criteria that they should include? For example, I could imagine adding these:

Freedom of the press
Not just the size but the intrusiveness of government
Government stability and autonomy
Monetary stability

And maybe others.

In researching this question, I answered it for myself. Fraser has also published what it calls the Human Freedom Index. In this study, Hong Kong drops to the 34th place, Singapore to 44th, and the King of the Roost is ... wait for it ... SWITZERLAND!

I could have told you that. My favorite country.

Here are the criteria for the human freedom index:

Rule of law
Security and safety
Movement
Religion
Association, assembly, and civil society
Expression and information
Relationships
Size of government
Legal system and property rights
Sound money
Freedom to trade internationally
Regulation

So be careful which index you use for decisions about your future. Frankly, what is economic freedom without human freedom, I ask you?

The Dollar's Reserve-Currency Status Might Be In Jeopardy

2022-04-13T15:18:00.000-07:00

If you have ever wondered about the global use of the dollar as a reserve currency, you might be interested in this article now published at Seeking Alpha.

(I hope you can open it; if not, I can send a transcript. Just leave a comment, which I will not publish, with your e-mail address.)

What Should Young People Do With Their Money Today?

2022-03-27T13:54:00.008-07:00

We are living in unusual times. The US has never had so much debt, and its central bank has never created so much money out of nothing. Most central banks around the world are following suit.

As of March 27, 2022 at 4:45 PM Eastern Time
Watch it evolve here:
National Debt Clock

History suggests that at some point the crap will have to hit the fan. What will that moment look like, and how will it affect the younger generation?

Most youngsters have no idea what’s coming or how to protect themselves. Those that have some savings probably won’t have much choice other than to put them in a bank account. Most will have little money to save, so they will be forced to go with the flow, "play it by ear" as I like to say.

But still, there are traditional rules to follow. The first rule seems to be to put some money aside as soon as one is able. The purpose is to build a cushion for the proverbial “rainy day.” Young people should do this now before trouble begins. And this advice applies most urgently to young families. Common knowledge says to put away, little by little, about six to twelve months of living expenses.

Young people should keep credit to a bare minimum, pay off the principal every month, and watch impulse buying. Be smart and humble. Make do with a good second-hand car and merely adequate housing until they have the necessary savings put aside.

And budget, budget, budget. My own rule as a young adult was actually very simple: “Spend nothing above the essential, with only very rare exceptions.” That worked very well.

Buying of gold coins can be entertained at some point once the above is achieved. (But be careful where they are stored.)

Then one could venture out towards other investments. Examples: Depending on one’s capacity to manage rental property (land or habitat), and also on the state of the real estate market (i.e. not now), that might be an option. Depending on one's plans for moving or not, one could buy a home.

Then, if finances permit, there's the option of branching out from there to rental property of some sort. That’s assuming, of course, that one will not be changing jobs and moving to another state right away, and that one has the time and inclination to devote to this side business (for that's what it is).

Eventually stocks and bonds can be considered, in an effort to build up a retirement account that will grow and provide an adequate income later in life. One can find reasonable advice about that almost anywhere. Caveat: If the investor decides to go with an investment advisor, just be careful about the fees. Compare, compare, compare.

And here again, watch the timing in a “macro” sense. The best time to buy is when the market is in a recession and the investor's own employment situation is secure – a rare combination. Some say don’t try to time anything at all. Just start accumulating little by little over time. That’s possibly the safest way to go about it.

If the whole show comes to a halt because of the monetary nonsense that has been going on since the last century, then it will be survival mode for most of us. The young will do whatever they can just to get through it, but they will have little to lose. Those who have some savings will need to keep a level head, not panic, and stick to the basic rules we have trusted to date.

One really can’t say much more. The current situation is unusual in many ways, and yet in other ways it's classic. As has happened so many times throughout history, currencies all over the world are all being debased, which is easy to do because they are all reliant on a “fiat” monetary system. In other words, no currency in the world has a solid foundation, such as a gold standard or equivalent, as was common in the past. They have all been manipulated, inflated, and deformed to the point of potential rupture.

In our modern world, cryptocurrencies have been introduced, which is of course new. We don't know yet how they will turn out. Meanwhile, some old standbys are still available. One such is gold, which retains its “barometer” function over the long term, from what one can see so far.

The Swiss franc is also still a beacon in a sea of monetary folly. In the 1970s it was 4 Sw.fr. to US$1. Now it’s 1 Sw.fr. to US$1.07. Unfortunately, Switzerland no longer accepts US citizens' money in their banks, due to burdensome reporting regulations between the two countries. Other forms of investing there might exist, however.

It would seem to me that a disruption is inevitable. But if, when, and how? Only a fortune teller would pretend to know.

So When Will the Next Recession Strike?

2022-03-20T12:07:00.002-07:00

Lots of elements of our current economic situation point towards a disruption of the status quo sooner or later. Here is a list:

The Federal Reserve has been blowing up the money supply over the past few years, with the result that markets are skewed, e.g., real estate and the stock market, which I will come right out and say are bubbles.
Price inflation has raised its ugly head, inspiring Fed actions that may or may not work. (John Williams on his website Shadowstats would show a much higher figure, but he's behind a paywall now. [Congrats to him, but too bad for us.])
The Covid responses around the world have disrupted the supply chains and been responsible for a least a part of the price inflation – but which part? Hard to say. Here's a chart giving only the supplies that Russia provides. You can imagine the rest of the world.
The world seems to be dipping into a precursor of World War III, or at least a period of daring moves on the part of some globally aggressive players, which makes everyone jittery.
The dollar's reserve currency status is undergoing a test as China and Russia pair up to circumvent recent sanctions on Russia's banking system.
The yield curve has recently started to invert, which some say is a harbinger of bad times to come.
US bonds have been extremely expensive for the past few years (yields are the inverse of the cost of the bond), but loss of reserve currency status could definitely put a wrench in those works, causing a flight from the dollar and from US bonds. (Having said that, the US bond still seems like the tallest reed in the field of bond choices.)

Even from a business cycle point of view, one can be certain that there will be a recession, and probably sooner rather than later. But as I’ve said before, no one has ever consistently (important word there) predicted when a recession will occur. So any effort to do this is really risky. The chances of being right are probably about 50-50, but the resulting damages from being wrong are astronomical.

On the other hand, I see no reason one can’t try to protect oneself from potential recessions all the time, which is what E.C. Harwood and others at AIER wrote about over the years. (Send me your e-mail in the comments, which I won't publish, for a copy of his last book, The Money Mirage.)

The Money Mirage
by
E.C. Harwood

Will the Federal Reserve governors stop trying to increase interest rates (which increase is supposed to depress price-inflationary pressures) because of the war and its effects on the US? Or will they plow through with their original intent and risk being blamed for any damages that critics might later say (justifiably or not) that they caused?

A more interesting question is: Do the Fed governors really know what they are doing? If you've read a few of my blog posts, you know my answer to that one.

My guess is this: Should any whiff of recession come around the corner during this war and its consequences, the Fed will soften its interest-rate-raising program. But who knows if we will get that whiff? Only time will tell.

So I hear Europe has energy problems

2022-02-04T14:48:00.001-08:00

A friend asked me recently if Europe has energy problems. Yes, I replied, and for a number of reasons.

Europa on the back of a bull (Zeus)
From Creative Commons

Off the top of my head:

- Everything including electricity, gas, heating oil, and gasoline is overtaxed and therefore expensive.

- Price inflation is happening everywhere in the world including Europe, particularly in those commodities.

- With the recent price inflation, the EU as a whole and each individual country feel the necessity to help the lower income brackets (e.g., students, the unemployed, low income families) with stipends to cover the increased cost of heating oil and electricity along with everything else.

- Given the Climate Change hysteria, there is great pressure to diminish the use of fossil fuels in everything including heating and cars, which puts more pressure on the electric grid.

- Popular sentiment is still very anti-nuclear, and yet Europe, and most particularly France, is extremely advanced in nuclear technology. France has the most energy input from nuclear in the world, I believe, and could be completely energy independent because of it. But the politicians are dismantling them one by one to please the progressives. Macron is currently trying to persuade the country to develop nuclear energy, but it will be an uphill battle. So far he has faced little blowback. (Do you suppose people are beginning to see the problem?)

- Germany has many coal burning plants, but likewise they are dismantling them to please the progressives. The more this happens, the more expensive and rare energy gets. They will soon be beholden to Russia for their natural gas supply.

Europe has little natural gas and refuses to frack (again, for the progressives). Therefore, a number of other countries will be buying more and more of it from Russia. Most of it comes in through two major pipelines, one through Eastern Europe, and a new one coming in under the Baltic. The US has been trying to stop that pipeline, but obviously Europe doesn’t want to stop it and so they have been kowtowing to Russia. The US was providing lots of natural gas for the past few years, but Biden, by stopping the pipeline construction, has indirectly stopped that.

- The wind mills and solar panels are beginning to irritate the locals, e.g., in the North Sea where it disturbs the fisheries, and across the countryside that is still very populated. Plus these types of energy are really not economical and will not solve the energy needs.

So you think they have problems?

Gold versus Bitcoin

2021-12-13T09:01:00.003-08:00

Two "coins"

Interesting, isn't it, that bitcoin is often portrayed as a gold coin. Well, I think there is a reason for that. If you're curious, you might find this article interesting:

Seeking Alpha - Katy Delay Blog

I wrote it for the financially unsophisticated reader. If you have questions, please don't hesitate to ask and I'll do my best to find the right answer. I'm not an expert myself, but I've acquired a basic understanding of the crypto technology.

Evolution of a Central Banker - 2012-2021

2021-06-30T07:46:00.005-07:00

I wouldn't want to be a central banker for anything in the world. Just imagine: the whole world is hanging on your every word – indeed, every facial expression – to see how the economy will fare in the coming months. And look what such a job can do to your smile....

[Click on the image for a larger version]

Youthful Infatuation with the Climate Mystery

2021-05-10T06:23:00.012-07:00

The climate gurus and the virtuous young are trying to lead us somewhere. I just wish I knew where.

[Drawing by Kate Greenaway, 1888, illustration for Robert Browning's The Pied Piper of Hamelin]

The Economics of Socialism: A Primer for Young Adults

2021-05-07T05:35:00.002-07:00

A young friend recently asked me for my opinion of socialism. She and I both admit that the theory sounds so appealing to idealistic youth. She told me she thinks it isn't realistic, but she doesn't have the necessary ammunition to use in debates. So here are some thoughts about socialism:

Underlying premises

Humans are a social species, and most people are instinctively caring.

Source: Neuroscience News

We are empathetic towards animals and people who seem to be suffering. On a family level, we usually try to help a relative who has special needs. Some go above and beyond and create charitable nonprofits with a mission to help others. Take the examples of the Red Cross, the Salvation Army, or the many churches that organize activities to help locals.

Also, most people also have an innate sense of fairness and of the universality of basic human rights. For example, every person should have an equal right to life, to a maximum of liberty, to be able to speak one’s mind, to worship freely, to own things and land, and to be treated equally under the law.

At the same time, God, or Nature if one is not religious, has made each of us distinct from one another. We are not equal. We do not all have the same talents or strengths or weaknesses. We do the jobs that we can do, and we earn our living as best we can.

Obviously, some people can do or create things that provide tremendous benefits for everyone. Steve Jobs or Sam Walton come to mind. As a result, our free society and the market economy give them more income than the rest of us. "Equity," i.e. equal income (as it is interpreted today), is not natural. And this seems acceptable when everyone has a job and things are going well. However, sometimes things get tough, and people begin to feel that rich people are way too rich. (This has an economic explanation, but that will be for another day.)

The socialist proposal

For those reasons, when a politician comes along spreading the notion that we should all be "equal" in lifestyle, and that government can create programs to take care of the needy, to make life more comfortable for the less talented, and to spread around the wealth more "equitably," we tend to feel that it might be a good idea. Plus it seems logical that government should be able to centralize charitable efforts and therefore be more efficient. In fact, this sounds pretty great.

The problems

As it happens, however, there are several problems with this notion:

1. Forced taxation without verification: Unlike nonprofits, which can survive only if they receive enough voluntary donations from a generous but discriminating public, governments can force taxpayers to contribute. And this is true no matter how well or poorly run the government programs are.

Furthermore, the distribution centers required by national programs are dispersed all over the country, and the financing and management are not easily visible. This means that the taxpayer has no real way to verify whether any particular government program is well run or even successful without a great deal of effort. With private and sometimes locally run nonprofits, donors can watch the finances and judge the results to help them decide whether to give or not. But taxpayers do not have that facility. As a result, government programs:

a. tend to become bloated, wasteful, and inefficient;

b. very often cause more harm than good (see examples below); and

c. distort the financial equilibrium of the economic relationships surrounding the activity. Example: Medicare establishes the prices of certain medical interventions and drugs at lower than market level. This in turn encourages hospitals and doctors to increase their prices for private payers, such as insurance companies and individuals without insurance, just to make up the difference. (This partly explains the high cost of medical care and drugs in the US.)

2. Lost charitable-giving incentive: Potential donors to private charities, believing they have already “contributed” to these government programs, decide to reduce their giving to charities, and the charities reduce their activities, either for lack of money or of “customers.”

3. Psychological damage to beneficiaries: Receivers of benefits come to believe that they deserve help from the government and that what they receive is not charity. Often they begin to doubt their own capacity to improve their lot in life. Example: Benefits for unwed mothers encourage some parents not to marry, often leaving the mother with most of the personal and financial care of their children. It might be quite normal for such a mother to begin to believe that she doesn’t deserve to have a faithful husband, a father figure for her children and family co-caretaker, and that she cannot provide for her children without the help of government handouts.

4. Abusive taxation: Taxes must rise to cover the government programs. Taxpayers begin to resent the forced and excessive taxation, especially when their total tax burden rises above 17-20 percent, statisticians have found. As a result, they find ways to hide their income, move it offshore, or perhaps simply decide to earn less. As a result, no additional taxes are collected, and everyone’s standard of living decreases as less work is done across the nation.

5. Conflict of interest: Even without increased tax revenue, governments do bring in lots of money, and because they don’t have to watch their expenses or make a profit like an ordinary company, they start increasing the number of employees and creating lots more agencies to handle all the additional duties we have given them. Congress votes themselves and their employees raises and extra benefits that most companies couldn't afford. After all, they don’t have a “bottom line” to prevent them from overspending our money, and in the case of the federal government, no balanced-budget requirement forces expense control. As a result, the nation (i.e. the collective "we") starts to go into debt.

6. Corruption: Politicians realize they have become powerful and can manage huge sums of money, sometimes in favor of their own constituents, which in turn helps with reelection. This encourages corruption. You have perhaps heard the dictum: Power corrupts; absolute power corrupts absolutely. This dangerous combination of power and money starts to attract unsavory types who crave power. Some can become so powerful they start to act like little dictators. (Andrew Cuomo is a good example.)

These are some of the unintended consequences of excessive government size and control. The charitable actions could be better and more efficiently performed by smaller, more localized groups, but the more the federal government tries to interfere, the greater the unintended consequences. It can get so bad that the whole country suffers.

The French case in point

For example, in the 1970s the French people voted for a socialist government that put in place a number of seemingly helpful redistributive programs. These included, among other things, the imposition on companies of strict employment contracts with expensive conditions for letting employees go; generous unemployment benefits; healthcare for everyone; and free education up to the university level for everyone who can pass a certain test. (Sound familiar? This is what Bernie Sanders, Kamala Harris, and Alexandria Ocasio-Cortez want for America.)

Rigid employment contracts

What has been the result? Companies, handicapped by the strict terms of the employment contracts, hire fewer employees. Small entrepreneurs may no longer risk opening a business at all because it’s too expensive. Employees who are hired must work harder. The labor market becomes imbalanced, now favoring employers over employees because there are more people looking for work. In France today, hundreds sometimes apply for one position. Since candidates are desperate, this means that employers can offer lower wages and make people work harder. This is exactly the opposite consequence from what was intended, isn’t it?

Generous unemployment benefits

French unemployment hasn’t gone below 6 percent since the 1970s when they began their socialist experiment. Today it’s at 8 percent, and it has been up to 11 percent and more. Some even say that governments have an incentive to fudge those numbers as well – I can attest to the fact that many potential unemployed are either in some kind of useless training program (a "stage de formation") or are still in school well beyond their scholastic aptitude. See below for the official statistics since 1968. (The word “ans” means age. The graph shows total unemployment [red] and unemployment according to age group. The blue one is 15-24 year-olds.)

French Unemployment

And another thing: Generous unemployment benefits encourage recipients to hold off looking for work as long as they can. It’s such a painful process and so many people apply for the few open jobs that the chances of finding work are low. "Why bother? I’ll just wait until my benefits run out. And anyway, I paid into the system so I deserve to take advantage of it.”

And for those who still can’t find a job after a year or more of inactivity, there is something called the “Revenu de solidarité active.” This translates to “Active Solidarity Income” and resembles “Universal Basic Income,” another great-sounding but counterproductive idea of BS, KH, and AOC, which the current US government would love to put in place.

Universal healthcare

Healthcare for everyone sounds wonderful. But what actually happens is that people start going to the doctor or the emergency room for anything and everything. Sometimes they don’t have to lay out any money at all, or at worst a small percentage of a very low fee. Everyone knows that lower prices mean more buyers. All one has to do is to offer something for free to find out how many takers will appear out of nowhere. (Strangely enough, even one penny seems to make all the difference in the world! I know this from an experiment I once did on Craigslist.)

On the other side, the government budget for healthcare has become underfunded because of the above, and also due to poor management (see higher above). Plus the socialist French government decided to limit the number of medical students. Today, this means not enough doctors, and very poor pay.

The work environment for nurses and other hospital personnel has become insufferable, with many hours of overtime, sometimes unpaid. The collective result is a worsening quality of care, difficulty finding employees, and a limitation on the services and facilities. I have noticed a substantial reduction in the quality of care in France since I first arrived in the 1970s. It may seem cheaper, but in the longer run the system is visibly self-destructing and eventually will fail.

Free college education

And what about education? Just as in the US, public school teaching quality has diminished substantially. Nationalized curriculums and unionized teachers have produced a real tragedy in the quality of education in both countries. To improve the statistics (but not the quality), the nationalized tests have gotten easier. Almost all French teenagers pass the “bac” exam permitting them to go to college.

Although in the US many students go into debt (which is another tragedy with a different economic cause), in France university schooling is free. On the other hand, there are so many students that the universities are overcrowded. And many students (similar to the US) end up quitting in frustration after a year or two. They have not gotten any alternative training, so they have basically wasted those years of their life. Or they graduate with degrees and high expectations that don’t guarantee them a job. Although French students don’t go into debt themselves (unless they or their parents need it to pay for food and lodging), the government (i.e. the people) accumulates the debt instead.

The financing trap

To finance all of these goodies, taxes are incredibly high in France, both on income and on anything and everything else. Examples: almost everyone pays income tax, but also a 20 percent tax on many things they buy; there are huge taxes on gasoline, which almost triple the price at the pump (as of today, $2.95/gal US versus $8.05/gal France); taxes on one’s real property exist just as in the US, but also another tax just for living in a home (called a “taxe d’habitation”); payroll taxes increase the employer’s payout over 150 percent and lower the employee’s take-home pay by about a third; and on and on.

Typical French payroll statement in 2016:

Gross salary €1,660.67 + overtime €237.19 = €1,897.86

Taxes paid by employer over and above gross €565.58

Taxes paid by employee from gross €378.23 + €19.63 = €397.86

Net salary of employee €1,500

Total cost to employer €2,463.44

Ratio employer cost to net salary = €2,463.44 / €1,500 = 1.642

Source

Eventually, this situation must come to a crisis. And indeed, there have been more and more frequent protests by ordinary people whose standard of living is decreasing, some of whom can no longer afford to pay for the necessities of life. These protests stopped a bit with the virus, but they will start up again as soon as people are more comfortable about going out, especially after the end of the summer vacation period. (Did you hear about the French “yellow vest” protestors in 2019?)

The paradox

You would think the French people would wake up and see the source of the problem, but many of them cling to their fantasy about socialistic redistribution schemes. There are a number of political parties, but only a few would attempt to change the generous fundamentals, and these parties are not popular. It is a situation that will come to a very bad denouement within the next decade or two, in my opinion.

Clearly, every country that tries a high degree of socialism must eventually either fall into poverty and civil unrest, or liberate the economy from its chains. Some Scandinavian countries have been able to turn back, such as Sweden and Denmark. Others like Venezuela – which used to be a very rich country – have fallen to the bottom of the heap and now experience extensive poverty, lack everything including basic necessities like toilet paper and food, and are approaching civil collapse.

Impossible dream or Machiavellian ruse?

Why don’t people see these obvious signs of failure? Socialism has never been successful anywhere in the world, and without exception the more a country adopts it, the worse off things become. I think it is simply because people vote with their emotions – from their gut – and don’t take the time to study reality. Plus they are easily cowed and then stirred up by ambitious politicians – a sort of maddening of the crowd. And finally, the emotions can run very strong and very deep, almost as if changing one’s mind is dishonorable, or would mean rejection by one's peers, or even might be fatal.

As for the politicians, I must believe that they are innocently enamored of their fantastical but naive beliefs. Otherwise, the alternative is that they know the truth but prefer to advocate for personal gain, civil unrest, and social collapse, figuring “après moi, le déluge” (“after I’m gone, let the flood waters rise”) as Louis XV is supposed to have said a few years before the French Revolution.

What is the Real Situation regarding Unemployment?

2021-02-09T10:42:00.006-08:00

Finally! An interesting chart about the unemployment situation from the most important point of view, i.e. labor force participation rate. Of course, we might need to examine what they’re using as “labor force,” but this is the first time I’ve seen this so well illustrated.

And who knew it was highest under Clinton and was only beginning to improve under Trump. In other words, it still had a long way to go. That was news to me.

Source: AIER via InflationData

Financial Pointers for a Teenager

2021-01-13T16:01:00.044-08:00

As a followup to my previous post, parents have been asking for pointers for their kids who will soon want to become more financially independent. Here is what I would tell these youngsters:

Thanks to Funny Everyday for the image.

Eight Steps to Financial Maturity

Step One

If you haven’t done so already, find a way to get your first experiences with being employed and receiving a paycheck, even if it’s part time or short term. There’s nothing like getting paid for work to give you some profound financial understanding. You'll also need to open a checking account, and why not also a savings account at the same time. We'll talk about those shortly.

When you do get your first paycheck, take a look at your salary and how the final amount is calculated. You will see that your employer pays out quite a bit more money than you receive. This is because he is paying the federal and state taxes that apply to your situation.

If someone tries to tell you that it is the employer who is paying those taxes, you should know that he would very likely pay you more if those taxes were not obligatory. More about this someday if you have questions about it.

Step Two

Once you have opened your bank accounts, be sure you have learned how to balance your checkbook, and keep your savings account up to date. This means that every time you use your debit card or a check to pay for something, you must write the amount in your checkbook so that you know exactly how much money you have left in the account. Overdrawing on your account will be very expensive. And don’t forget any regular bank expenses such as small maintenance fees, unless your bank offers you an account without any. Be sure to ask the banker about this when you open the accounts.

Step Three

Try to understand a little about the history of money. You may have already seen my little introduction to this. If so, you’re ahead of the game. If not, I would suggest you take a few minutes to understand some basic notions.

Step Four

Do a little reality exercise as follows: Get out some paper and make a list of your expenses during each day. Do this every day, and I mean every single day, and every single penny. Don’t worry, it doesn’t take more than 30 seconds.

The justification is this: I don’t think there’s a human alive who doesn’t arrive at the end of the month wondering where the money went. Some even get paranoid and think somebody must have stolen it! And that’s probably not the case. We simply spend way more than we think, because small expenditures add up over time.

Step Five

Once you have gotten into the habit of doing this for about a month, prepare a neat page with columns and rows. Then take a look at your listed items. What are the major categories of your expenses? Examples might be Starbucks (it's amazing how much kids spend at Starbucks), clothing, drugstore items, gifts, rent, food, school-related, transportation, eventually vacation, insurance, taxes, things of this sort. Then add a column for miscellaneous, and another for savings.

Now: Every evening, put your daily expenses under one of the columns. By doing this little chore on a daily basis you will begin to see how to set up what’s called a budget. It will help you become conscious of how much you are spending and where you might be able to change your spending habits.

Later in life, this little discipline will come in handy when you have a family to organize, or other plans. It will put you solidly in control of your finances. (Here's a nice little nonprofit that sells a neat budget booklet that will facilitate this for you.)

Step Six

You will be tempted soon, if not already, to sign up for a credit card. Keep in mind that savings are your friend, and credit (actually debt) is your enemy. As a youngster, you start out with no credit at all, but at some point you will find it important to have a good credit record. The best way to get a card is through a store like Walmart. Later you will be able to apply for other types of cards.

BUT … BEWARE!

Credit cards are devilish. They encourage you to spend more than you can earn, or receive as allowance. You will be allowed to go into debt if you promise to pay the card company back over time, assuming the card company believes you. But the hitch is that they will try to take a huge amount of money for this service, sometimes up to 14-26% annual interest. And they’re sneaky, because they’ll only ask for a small sum every month. You should understand that they do that because they get much more of your money this way. You are the obvious loser in this arrangement.

Let’s just try the experiment on our calculator: Enter an amount representing a purchase, say $200. Your credit card will charge you something like 18% annual interest. When the first bill is due, you pay the minimum, for example, $10. You now owe $190 plus $2.85 for the interest. The next month you pay $10, and you now owe $182.85 plus $2.74. Keep doing that until the whole debt is paid off. Two years later, you will have paid the $200, plus another $70.64. That’s 35% more than the original price!

And the worst part is that while you’re paying the minimum amount every month, you think you still have lots more credit to spend, and if you're not smart you probably will spend it. But obviously that just makes it much worse, since what you owe will increase alongside the interest amount.

Is it really worth it? You could instead have waited a couple of months and saved up enough money to buy whatever it is for the $200. Then you could start saving right away for your next purchase, instead of paying interest to the bank.

Believe it or not, many Americans have several credit cards that they are paying off all the time. This means they are constantly indebted to some bank, and many have no savings at all. Sometimes they are late in paying even the minimum, and the bank charges them horrendous late fees. I doubt these people have ever taken the time to calculate how much money they are paying for the privilege of getting themselves into debt. A few get into so much debt that they can’t get out of it without some kind of intervention.

If you're going to have credit cards, my recommendation is that you pay off all charges every single month, in total, period. Use the card as a convenient payment device, and not as a magic source of extra money. Do this, and your credit rating will be good. And you will be smarter than 95 percent of humanity.

Be sure to ask your bank to sign you up for smartphone notifications of every expenditure, even small ones. It happens frequently that our credit card or bank card numbers are stolen, and if you catch any improper expenses immediately, you can call the bank and get the charges reversed. But you have to act fast.

Sometimes – very rarely for most of us – credit can be helpful. For example, you may unexpectedly need a car to drive to work or school. If you have a credit card, you might be able to buy a cheap car with it, and then pay off the amount over time. This may actually be something you'd want to do in spite of the extra interest expense. But be sure to calculate all the amounts you will pay, including the interest, to find out the total cost of the car. And of course you want to be certain that you will be able to pay off the debt with whatever income you will be receiving and still have enough money for your other expenses.

Step Seven

Start thinking about saving a little money every month for future need. You will be surprised how often you’ll find something that you’d like to buy but can’t afford. And small savings every month add up surprisingly quickly. I just heard from a friend that her mother started a small savings account in her early 20s with about $25 a month, and by the time she was retiring, it had over $200,000 in the account!

Step Eight

I know it seems too early, but think about eventually preparing for your retirement. You will not be happy in your old age if you don’t have any savings. We tend to be a little nonchalant about this, but when you do get there, you will be very happy to have saved up a good sum of money. You don’t want to count on whatever small benefits the government might have for you some 50 years from now.

When you get to that point where you are saving a good bit of money, perhaps we can discuss how best to invest and protect it over time.

What Is Money? The Basics Your Teenager Needs to Know

2021-01-11T17:22:00.033-08:00

Recently someone asked me to write an explanation of "money" for a teenager. Perhaps you have a youngster who could use such an explanation, so I am publishing it here.

* * * * * * * * *

The Evolution of Money

Once upon a time, people didn’t use money as we know it today. Instead, they exchanged favors for favors, work for work, or items for items, or some other combination.

For example, in the early settlement days of this country, pioneer traders would exchange jewelry, knives, and guns for beaver skins offered by American Indians. Or a baker could exchange ten loaves of bread for a case of apples. Or a friend could help you build your house, and you could help him sow his crops.

But this immediate type of barter exchange is not always convenient, since you may not want to acquire something right this minute. Sometimes you want to buy an item in a different town. Sometimes you may want to get a haircut next week, but not today. So people came up with the notion of “money” as a way to hold on to the compensation for your work, or for the items you sold, so that you could use it later.

Way back in history, this money could take the form of a valuable sea shell, or a cow. In later times it might be a silver coin or two, or a bar of gold. These objects had what's commonly called "intrinsic value," meaning that they were appreciated not just for their value in exchanges, but also for their own beauty and/or utility.

Eventually, the idea of writing a promise of value on a piece of paper became popular, especially in market situations. Because towns evolved to the point where most people didn't necessarily know each other, intermediaries became involved. For example, if you had a lot of coins, this intermediary was someone you could trust who could hold your coins and give you his paper in exchange. Everyone knew this person, so his paper promises were considered valid.

This transaction permitted you to go about your purchases without lugging your coins around or risking them being stolen. This kind of paper money was a kind of claim ticket, a kind of promise of future purchasing power, and the intermediary was actually the first banker.

Today, at some point in your life, what and how many dollars you have will probably depend upon how much your work is valued by the person who hires you. With the paper dollars you receive (or the digital dollars that arrive in your bank account), you can buy things and services. Or if you don’t want to buy anything right away, you can save the dollars so that you will have them for later use.

Three Facets of Money

So we have now described three basic facets of money:

1. Unit of account
2. Means of exchange
3. Store of value

You can easily understand that units of money are a handy way of comparing the prices of things, and that since money is expressed in terms of numbers of currency units (dollars in our case), it can therefore be counted. (No. 1) It can also be spent (No. 2), or it can be saved and invested (No. 3).

How Much of Our Money is Real?

The question arises whether or not paper or digital dollars are a good “store of value” over time. This question would lead us into a discussion of monetary inflating, about which I wrote a few months ago. It's rather complicated, but to make a long story short, the unfortunate truth is that paper or digital money is not always what it appears to be.

Just to give you an idea of what I mean, take a look at this chart of the diminishing value of a U.S. dollar since the beginning of the last century:

I have also prepared another chart and some photos that illustrate this phenomenon here.

It is very important that you realize that what I will call real money can only be those paper and digital claims that truly represent work done and that haven't yet been exchanged for other things or services. (This is an oversimplification, but I think it gets the important message across.) Anything above and beyond that should be called credit.

It used to be that banks were in control of the amount of real paper money and credit that were created. This worked pretty well since they were closer to the actual production of things. Bankers usually knew their clients well.

Unfortunately today, the amount of paper or digital money created in the US is now handled by a government-appointed bureaucracy (the Federal Reserve, or the Fed) that has no idea how much money should be printed to represent work done. In reality, for the past 100 years or so the amount of dollars printed or digitally created is way more than it should be.

Without going into too much detail right now, you do need to understand that any creating of money beyond the total value of work done by everyone represents credit, which is very different from our current definition of money, even though most people use the same name for it. Credit is really debt, and it must be repaid in dollars from future earnings. And credit involves risk. In fact the more credit, the more risk. We could say that credit represents tomorrow's work.

So far, all the real dollars and the credit/debt dollars created by the Fed have been absorbed by our economy and that of other nations. In fact, so much credit/debt exists today above and beyond real dollars that no one really knows how much our Nation has created, nor how much we can increase our debt load. The situation is precarious.

Throughout history this has happened in a number of societies, and it does not end well. Most recently, perhaps you lived through 2009-2010 and remember the hardships some people had to endure when things turned sour. That episode was the beginning of a tremendous crisis caused indirectly by excess credit. It was rescued in extremis by the Fed, at least temporarily, until the next episode.

You can also learn about what happens when things go badly by reading some of the stories of 1929, or of the Roman empire's decline.

If you have questions please don't hesitate to comment below. It will inspire more explanations. Another article is coming soon about handling your finances.

PS: My Dad (Edward C. Harwood, founder of the American Institute for Economic Research) stopped using the word "money" because its meaning has become very slippery, even among academics. He began using the phrase “purchasing media” instead of money, but that is a bit cumbersome for a teenager, so we’ll keep using “money” for now.

Who Says There's No Price Inflation?

2020-12-14T17:00:00.002-08:00

I have a proprietary statistical tool called the M&Ms Price Inflation Index. It's not very sophisticated, nor guaranteed to be 100 percent accurate, but I think it's pretty darn near the real deal.

Here it is, and it's pretty convincing to me.

For those of us who prefer pictures, here is the same information in a different format: (you can click on the photos for a larger format)

The June 2020 Covid Conundrum

2020-06-11T09:21:00.001-07:00

Is anyone else feeling as confused as I am about our current situation?

Click on image for larger version.

A Constitutional Moment in History

2020-05-31T13:27:00.000-07:00

This Corona virus episode is really disturbing on several fronts. I have tried to evoke one of them with this cartoon.

Click on image for a larger version.

Gold Has Retained Purchasing Power over the past 100 Years

2020-05-26T15:28:00.003-07:00

As it happens, I am rereading the masters thesis of my economist father, Edward C. Harwood. He went on later to found the American Institute for Economic Research.

In his thesis, he cites the example of a car factory (this is 1931) that produces 100 cars a week. He gives the value at market of the weekly production at 100 pounds of gold.

In those days, the dollar was calibrated at $20.67 per ounce of gold. That puts the dollar value of the 100 cars at 100 pounds of gold x 16 ounces x $20.67 = $33,072, or $330.72 (in 1931) per vehicle.

Using today's dollar exchange rate with gold, we get the following:

100 x 16 x $1,713 = $2,740,800, which is $27,408 per vehicle.

The average price for a car in the US in 2019 is $36,718 according to Kelley Blue Book. I find that incredibly high, but according to a few articles I have read, this is indeed the average price of a light vehicle. One writer chocks the high price up to high demand and easy credit terms. This is possible, especially when you look at the demand for the bigger SUVs and light trucks.

But my fundamental point is that one can still buy a decent car for about 16 ounces of gold. Here's a 1929 Ford versus a 2020 Subaru.

By Richard Smith - Flickr, CC BY 2.0, https://commons.wikimedia.org/w/index.php?curid=329429

2020 Subaru - same price!

I wish that we could still buy a car for 330.72 dollars! But you certainly can still buy a car for 16 ounces of gold.

Congress Sees No Limit to Its Credit

2020-05-16T10:17:00.000-07:00

Last night Congress voted to pass another trillion dollar "stimulus" bill. Apparently, they believe the government has no credit limit.

Click on the image for a larger version

What Could Possibly Be Worse Than A Virus?

2020-05-14T16:57:00.000-07:00

A few years ago, I ran a series of Unintended Consequences. One more comes to mind.

Click on image for a larger version