How to Make a 979.2% Return in 43 Years...
Embrace inflation, that's how.
In some newer dictionaries the term "Inflation" is beginning to be revised as a phenomenon of rising prices. But I prefer the traditional meaning where "Inflation is the Increase in the money supply".
I'm sad to say, the Keynesian economists and other money printers are in effect encouraging this change of the financial lexicon.
If you read from the RBA's mission statement you'll read the expression "targeted inflation." In other words, THEY PRINT MONEY!
You won't see any of the central banks of this world define the true meaning of "Inflation." And (big) government won't do this either.
The cure to rampant price increases can be found in the sound money principle.
Perhaps to state the obvious: gold and silver as money. Unfortunately, this argument falls on very deaf ears. Again to state the obvious, this would limit the ability of the three most untrustworthy groups from creating money: Banks, Government and the Reserve Bank of Australia.
Where am I going with this? Well if you read the Australian Constitution (and I gotta tell you a lot of dust fell off this baby) article 115 states:
"A State shall not coin money, nor make anything but gold and silver coin a legal tender in payment of debts."
Interesting how the framers of our Constitution knew a few things about real money.
In reading an old and dusty book written by H M Hyndman, "Commercial Crises of the Nineteenth Century" 1892 edition (he is an old English Socialist but for this example don't hold that against him), he quite clearly cites the reasons for all the stock market crashes from 1800 to 1892.
As a socialist he blames the businessmen of the day instead of the well documented printing of paper money by the Bank of England (One of the few central banks of its day).
Sorry for digressing, it's only to help explain the roots of the current crisis. It's the same old love story: banker meets printing press, they fall madly in love, and low and behold new money is born and born and born.
Rabbits couldn't do what these guys can.
Unfortunately the destruction of our money started way earlier than most other societies, 1929 to be exact. The Scullin Government took us off the Gold Standard. That's right, like many other countries, our early pounds were redeemable in gold. Their argument was the same as most government's, the need to increase the money supply through government over spending.
They would have told the public, "It's for the good of our society." Gosh, where have I heard that before?
One example of the way government pumped money into bygone Australia was the iconic Sydney Harbour Bridge. It's interesting that at that time there was no productive capacity at all in the northern suburbs, just mostly a bunch of wealthy small communities.
You have to ask who got that pork barrel going.
But the point is, the debt was eventually paid off in the late 1970's. That means it took over 40 years to pay it off.
The final "coup de grace" for Australia was the spinning off of the RBA (to become a private self regulated money printing organization. I believe in legal parlance it's called counterfeiting) from the Commonwealth Bank in 1960 to the inauguration of the decimal (fiat currency) system.
The last vestige of real money stopped being circulated in 1966.
And the destruction of the currency from 1966 is actually easy to calculate. Let me end by using this example:
The 1966 50-cent (80% silver and about one-third of an ounce) has a nominal face value of 50c. However, the bid price on eBay is between $6.50 to $8.00 for each coin.
But let's get one thing straight, it's not that the value of the coin has gone up, it's that the value of our fiat money has gone down.
Take a look at the RBAs own inflation calculator...
To buy fifty cents worth of 1966 purchasing power would cost you $5.40 today. That's an increase of 979.2%.
As Peter Finch screamed in Network "I'm mad, I'm mad as hell!"
Yours in Freedom, liberty and sound money,
Mark Thompson
(Thoughts from an old builder)
for The Daily Reckoning Australia
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Related Articles:
- Gold is the Only Place to Turn in Times of Inflation
- Gold and Silver Demand Unprecedented
- You Can Have a Deadly Depression and Dizzying Levels of Inflation Simultaneously
- The Benefits of Sound Money
- The Path Towards Rampant Inflation
About the Author
Mark was born in Singapore but raised in Sydney. After a stint living in Hawaii, Mark now lives peacefully in the Blue Mountains. After 33-years in the construction industry, he now spends his time trading local and international markets, and shouting at the establishment for destroying the value of money.
Comment by Philoz on 25 May 2009:
Mark, I don't mean to rain on your parade but the section of The Constitution you have quoted only applies to the states. The Commonwealth can pretty much do what it wants with the currency if it is for the "good order" of society. It looks pretty open-ended to me. (See below)
I think fiat money is a curse on any society but unless we change the Constitution I reckon we are stuck with it. The best we can do is try to keep ahead of the game which, as I recently heard on mises.org (http://mises.org/MultiMedia/mp3/audiobooks/Hulsmann/EOMP/13_EOMP.mp3) keeps us perpetually obsessed with making money and not spending time on things ultimately more important.
51.The Parliament shall, subject to this Constitution, have power to make laws for the peace, order, and good government of the Commonwealth with respect to: -
(xii.) Currency, coinage, and legal tender:
(xiii.)Banking, other than State banking; also State banking extending beyond the limits of the State concerned, the incorporation of banks, and the issue of paper money:
Thanks for the reminder - I think it is important to knwo what is happening to the currency. It's going to be interesting to look at the RBA calculator in one to five years time.
Cheers
Comment by mike on 26 May 2009:
...well, look on the bright side...creditors who end up losing their money, had more money than brains to begin with and even if they end up with the same brains, they end up with more brains than money relatively...so, they're still ahead after all...and in it being likely that they did learn something by their mistakes, they're lucky to have just killed two birds with one stone, which is actually a skill, a new skill which can be applied to the acquiring of more...money.....a new skill which incidently CAN be taken to heaven....it's one thing to lose money, but to do it with skill, now that takes talent...
Comment by Matthew Hopkins on 28 May 2009:
Hi Mark,
I often hear a return to the gold standard is return to monetary responsibility. I agree that we need an underlying value to currency rather than spurious establishment numbers and thin air. However, I believe we should look forward rather than backward. We really need to have environmental and social capital as the underlying value to currency, only then can we have sustainability. Furthermore, growth in the money supply would mean an increase in environmental and social values.
Happy to discuss