I trust by now I don’t have to convince any of you that rapid inflation in the near future is a great risk to our economy and our own economic health and well-being. Food and oil prices are going through the roof and they’re not about to slide backwards anytime soon. Of course, these are not factored into the government’s calculation of inflation, which is bogus from word one – like its unemployment data and other statistics that the government generates for the sole purpose of trying to convince everyone they are doing a wonderful job.
The driving force behind the food price increase is the incredible spending spree of QE2. This drives the dollar lower, thereby increasing the price we pay for food. This shortage by the way is responsible for riots around the world as more and more people can no longer afford to feed their families. The problem will only get worse.
As you can see, food prices are up an average of 50% since 2009.
The oil price rise is geopolitical in nature. Oil is a political commodity. Our oil reserves have never been higher but the price keeps rising as global demand keeps rising and the oil companies have to raise prices to offset the declining value of the dollar since all world oil transactions are settled in dollars.
The amount of money being created from nothing and thrown at our problems right now is unprecedented in history, so inflation is a when question, not an if one. This process can and will result in a devalued currency unit, and a direct beneficiary of that is rising precious metal prices.
In real terms, real estate will go down, precious metals will go up.
It’s interesting to look at this trend with gold which is normally done, but it’s absolutely fascinating when you plug in the numbers for silver. Not only may silver outperform gold before this is all over, but silver is more “affordable” to the masses.
Let’s borrow a chart from “Casey’s Research” and take a look at how many ounces of silver have been needed to buy a median-priced home in the U.S.
In 1970, it took 14,067 ounces of silver to buy a median-priced U.S. home ($23,000). By January1980, it had dropped all the way to 1,603 ounces, based on silver’s average price that month of $38.80. The ratio bottomed at 1,258 at silver’s record high of $49.45 (London PM Fix) on January 21. (We can argue later how much of that spike was due to the Hunt Brothers hoarding of the metal, but I will point out that gold and silver peaked on the very same day, implying the same forces were influencing both).
The ratio peaked in 1990 at 22,616 due to silver’s average price that year of only $4.06, and was still at 18,365 in July 2006, the pinnacle of the real estate boom. However, look what happened to the ratio in the four years and three months since: it’s dropped 66.1%, to 6,213.
You may think the ratio won’t fall further since it’s already declined 69.2% in the last ten years. But I would point out that it collapsed 88.6% during the 1970s – and that was amid a 170% rise in home values! Only economists on government-laced Kool-Aid could fathom home prices rising that much over the next decade.
All this adds up to one thing: the number of ounces of silver to buy a median-priced home at some point in the near future will likely fall below 2,000 ounces. And given the unrelenting abuse to fiat currencies, it’s very possible it could hit a measly 1,000 ounces. ONLY TWO SILVER MONSTER BOXES FOR A NEW HOME! Now that’s affordable.
Think silver is too volatile to use as a savings vehicle? The price fluctuates, no doubt, but ask yourself this: if you were to put ten grand into a savings account and another ten into silver, which asset will have more purchasing power five years from now? Even with the savings account earning interest, you’d be able to purchase much more with the stash of silver when you go to spend the proceeds.
I for one am convinced that the silver price won’t be stopping when it hits $50 and that the price of homes will still decline as the dollar declines. If I’m right about these trends, that million-dollar vacation home you always yearned for five years ago could be had for less than 4,000 ounces of silver!
The same thing is true for Gold. As an example, after winning Super Bowl I, Green Bay players received a check for $15,000, before taxes. According to the Minneapolis Fed’s Inflation Calculator, that would be $99,180 in 2011 dollar’s. The winners today will receive a $83,000 check.
With gold at $35/ounce in ’67, the winner’s paycheck would be worth over 428 ounces. Today, that winner’s check would be worth just under 67 ounces of gold.
And this with a union contract.
And before taxes.