Consumer Prices Down 50% Over Past 5 Years!

President Richard Nixon took the American dollar completely off any gold standard in 1971. Unlike our current fiat currency, money backed by gold cannot be created arbitrarily by government action. This restraint is key to preventing artificial inflation and the devaluation of a currency. It removes “currency uncertainty,” keeping the credit of the issuing monetary authority sound, and encouraging lending. The gold standard also serves to prevent governments from starting unnecessary wars, as they can no longer simply print the funds necessary for the war machine.

If you have a pulse, you are aware that US dollars are losing purchasing power and the hidden tax of inflation is slowly draining the savings of most Americans. If you are a goldbug, you have been dreaming of a return to the gold standard and responsible monetary policy. Of course, those in power would have to go down kicking and screaming (preferably in handcuffs) before this would happen. But lest you have any doubt regarding which standard would best hold value and conserve your hard-earned wealth, consider the following example:

Jack is a goldbug dating a women named Jill. Jack immediately converts his earnings into gold and holds all of his assets in gold.

Jill thinks gold is a barbaric relic and keeps her savings in US dollars. After arguing for a while about which approach is best, Jack & Jill decide to part in 2001.

5 years later they cross paths in a grocery store, exchange formalities and talk about old times. Jill mentions how ridiculous times are, with gas prices above $3 and groceries now costing a fortune. Jack, having saved in gold rather than dollars, just smiles.

For Jack, prices have actually fallen by 50% over the past 5 years. For Jill, prices have increased year over year, creating significant stress on her financial situation. How could things have turned out so different in just 5 years?

Inflation - Dollars vs. Gold

When you price consumer goods in dollars (like Jill did), you would have experienced 14% inflation in the last 5 years (using the government’s CPI data).

When you price consumer goods in gold, like Jack did, you would have experienced 50% deflation in the same 5 year period. That’s right, prices for consumer goods (as measured by the government CPI Index) would have actually dropped by more than 50%!

In 2001, the CPI Index was 178 and it would have taken 316 grains of gold to buy the CPI (gold priced at $270 per ounce). In 2006, the CPI went up to 203, but gold went up to $618, meaning only 158 grains are required to buy the CPI.

Got Gold?

By | 2017-03-23T14:06:43+00:00 August 4th, 2006|Gold & Silver Commentary|

About the Author:

Jason Hamlin is the founder of Gold Stock Bull and has been investing in precious metals for over 20 years. Jason spent nearly a decade in analytics for the world’s largest market research firm, before finding success investing full time. He launched Gold Stock Bull in 2005 and turned his focus from helping fortune 500 companies to helping individual investors. Jason is a student of Austrian economics and a proponent of cryptocurrencies such at bitcoin.