Archive for May, 2008

I keep hearing all this crap from the media about rising food prices.  And then they talk about the price of gas.  And then they talk about the falling home prices (which aren’t really falling, but simply returning to a more reasonable level after being inflated themselves).

But they always talk about them separately, as if they had nothing to do with each other.

They are very related…and the relation is to the value of our money, which is a fiat money issue.  It is related to ramping up the printing press, and a crisis in the faith of the value of the dollar.

Remember that fiat money has no value other than the agreement that it can be exchanged for things.  The US dollar is worthless if everyone decides we don’t want to use it for payments anymore.  At that point the govt must enforce its use, prevent by law the exchange of the dollar for something of hard value….and then the govt usually collapses some time after that.

So….what does this have to do with anything?  The recent rise in prices is caused by the devaluation of the dollar (a fiat money, printing press issue), not by any smokescreen the government or media may be reporting.

Here is the thought exercise:

The government is printing more dollars (through low interest rates), making each dollar worth less.  We see this, and the international community sees this. 

It is in everyone’s best interest to convert the value of your dollars into another store of value (gold, the Euro, real estate, etc.) that is more stable.  Every day you hold dollars, they are worth less…so you convert the dollars to something of hard value.

What do you choose?  The first option for the international community is probably another currency, because it is a quick, easy way to convert value….and we see this:  Major currencies all appreciating versus the dollar. 

But what happens when other central banks also depreciate their currency, or there is a crisis of trust in the fiat money system in general?  Easy:  We choose a hard store of value…something that doesn’t represent something of value (like a bill or coin), but actually IS valuable (like food, oil, real estate, etc.)

What is the most popular hard store of value ever???  Real Estate.  You cannot turn up the printing press on land.  Unlike paper bills, they’ll never make any more:  the supply side is fixed.  In uncertain economic times, land is a certain store of value.  And that’s what we saw:  Housing (and thus real estate) prices shot through the roof.  People liquidated their dollars (which were very cheap anyway due to low interest rates) and bought a hard asset.  We did it, and the international community did it.

So the “fall” in real estate values is not a fall so much as it is a return to more reasonable levels after a real estate bubble created by the process I described above.

Now lets look at Food prices:  Do you think there are suddenly more people eating?  Or that crops are failing all over the world?  No.  We buy most of our food from abroad, the dollar is worth less, so it takes more of them to buy food.

Now let’s look at Gas prices:  Is there a supply side issue?  Is less oil being pumped?  No.  Is there a sudden rise in demand?  Not enough to justify the current rise.   Here is the price of oil in gold instead of dollars:  our currency is plainly losing value.

Part of it is our dollar is worth less, so the price is rising.  On a related note, oil is priced in dollars as an international commodity, so the price cannot rise the same as non-dollar denominated assets.  So why the sharp rise?  Is inflation THAT bad?  I’m not exactly sure about this one…but it may be oil speculation.  The movers/shakers on the international scene are looking for safe stores of value for their money.  Currencies are being devalued (can’t invest there), real estate prices have already been run up (can’t invest there)….so what’s the next hard store of value to move to…..commodities (oil, metals, etc).  So the next bubble would be in commodities.

Is there anything we, as regular people, can do about the government devaluing our dollars?  Not really unfortunately.  For those with the determination, it is possible to denominate your savings accounts in other currencies, or gold….but I think most of us are stuck with inflation.

Update 5/30:  Here is an interesting article that makes the point I’ve been getting at with historical examples (which I was too lazy to lookup):  Fiat currencies always fail.

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The way of the future?  Don’t you mean the way of the past?

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Isn’t that what they say? As if thinking you’re younger can actually make it so?

My wrist injury has made me face aging for the first time in my life. I remember years ago I said “Youth will not rust in my possession.” I was like 15 or so.

As an aside, I thought I was quoting Thoreau or Emerson, but after a Google search it turns out I made that up. I can’t find that quote anywhere. The closest I can find is William Congreve in The Way of the World….which I can’t recall if I ever read: “For my part, my Youth may wear and waste, but it shall never rust in my Possession.” The olde English writers had an odd habit of Capitalizing things that didn’t Need it.

I have also said, “You will not die with your health, you might as well use it up.” I think Mark Twain said something like that, but it isn’t a direct quote. Another Google search doesn’t find anything similar. Maybe I made that one up too?

So for the first time in my life I am faced with a life altering injury. I join the ranks of adults who complain of their ailments, restrict what they do, and wear several braces while limping from one activity to the next. That is an adult activity; no youth involved.

I liked tennis because it is one of the only active sports you see older people playing, even the retired. I gave up basketball a few years ago because it was too hard on the body. Golf also counts in that group of elderly sports, but it isn’t much exercise…and my wrist won’t let me do that anyway…and I suck even if I were healthy.

I have seen more doctors this year than every previous year of my life combined. No youth involved in that either.

This is the first problem I’ve ever had that can’t be solved.  Usually hard work, or brains, or connections, or patience, or money can find a way to solve your problem.  If you can’t solve it, your just need more of something (more money, more time, etc).  This is something that can’t be fixed.

You’re always aware there are problems that can’t be fixed.  We read about them in literature, and see them in the movies and on Dr. Phil….but rarely do they show up in our lives, always someone else’s.  And we always think, “Man, that would suck.”  Guess what:  It does.  Being confronted with unsolvable problems is an adult lesson that I would rather not learn.

I have always been enamored with the idea of perfection of self…or stated in a healthier way: self-improvement. I’ve alluded to this in other posts though, and I’ll bring it up now again: Perfection requires time, and an unchanging environment to even begin to approach. If the variables are always changing, its hard to improve significantly. You just stumble ahead the best you can trying to figure out your new paradigm.

I did pretty well perfecting youth. I was able to be young, grow, have adventures, do it my way, and bear most of the responsibilities of adulthood while maintaining a youthful outlook…..but guess what: Now I’m a 33 year old youth with all the attendant advantages and disadvantages. And I’ve taken it as far as I can.

Until now I could basically say, “I’m pretty much as good as I’ve ever been at everything I’ve ever done.”  That isn’t completely true, but its basically true.  Now I can’t say that.  Declining overall potential is an adult issue.

The injury is forcing a philosophical paradigm shift. I am no longer young, and I must deal with that.  It took me 33 years to “perfect” youth. Perhaps by the time I’m retired I will have a handle on adulthood?  Funny.

So they say you’re only as old as you feel: Well…I feel old.

So is there anything good to come of this? Not much…but here is what I can come up with.

– At least I don’t have to move furniture anymore.

– At least I used my youth while I had it. Would it have been better or worse to have an injury like mine if I didn’t play sports or get exercise anyway? For those people, it wouldn’t have been an impactful injury. They weren’t active before; they wouldn’t be active after. I can do most day to day things without pain.

– Now I can focus on my music career (haha).

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The coming collapse of the middle class.  I’ve read this book.  It blew me away.

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Money Does Buy Happiness, but returns are diminishing. Tags:

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