Econ Saturday
A 100,000,000,000 drachma note, from 1944 Greece. A little slice of hyper-inflation history.
There have been many such episodes, and they all have one thing in common: the market is flooded with new currency. Diocletian dropped the gold and silver content of coins and also introduced coins made of copper and other cheaper metals. The Confederacy cranked out paper money, as did Weimar Germany. As the amount of money increases, it loses its relative value, just as silver would lose its relative value if it were suddenly as plentiful as dirt. As it loses its relative value, the price of goods goes up. It’s simple supply/demand stuff.
It’s getting simpler to do, too. Diocletian and other kings and emperors had to clip the coins, recall them and issue new ones, and go through other hassles. With the advent of paper money, governments could just crank out more money through the press. Today, the governments just issue electronic credits. Type “000,000,000,” hit “send,” and, presto, the government has injected more money into the system.
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If high inflation hits, you want gold and silver. Both dropped for awhile in mid-2008, but gold bounced back quickly. Silver lagged behind . . . until this week. It’s finally making a move, closing a bit over $13 an ounce. I suspect it’s in for a strong bull run, but you might find bear stretches in there. It dipped a bit on Monday, so I went to my silver dealer (who’s been great to work with and whose prices beat anything else I could find on the Internet when I started buying silver last year) and ordered 40 silver quarters, 50 silver dimes, 40 35%-silver buffalo nickels, and one “on clearance” collector silver coin. The roll of quarters cost me $119.59. Today, they cost $124.38. A petty win to be sure, but a fun one. And one that may increase: many people think silver is heading to $20 an ounce this year . . . and some think it could climb to $30-$50 an ounce in the next couple of years. We’ll see. I’m holding my clutch-ful for a rainy (monsoon) day.
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Frugality Tip of the Week: Idle. If you’re warming your car up in the driveway every morning, stop. Warm it by letting the car idle down the road. You’ll only go 5 mph, but after two or three minutes, you’re closer to your destination than you would’ve been if you’d just sat in the driveway . . . thereby saving yourself time and money. Warning: Don’t become a nuisance to others on the road. Keep to the residential side streets.
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Historical Econ Fact of the Week:
The ‘dollar” originated as the name generally applied to a one-ounce silver coin minted by a Bohemian count named Schlick, in the sixteenth century. Count Schlick lived in Joachimsthal. His coins, which enjoyed a great reputation for uniformity and fineness, were called Joachimsthalers and finally, just thalers. The word dollar emerged from the pronunciation of thaler. Murray Rothbard, The Mystery of Banking (The Ludwig von Mises Institute, 2008), p. 9.
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Bill Bonner addresses the idea that the federal government can fix this economic mess:
The feds are on the case…but haven’t they been on the case for the last 18 months…ever since Bear Stearns went broke? And wasn’t Tim Geithner right there in the room when they decided to let Lehman Bros. go broke…while saving AIG?
Albert Einstein: “Never expect the people who caused a problem to solve it.”
And aren’t the feds’ new plans to save the economy little different from their last plans? Bailouts, stimulus, tax breaks, new, looser credit…aren’t these the same things that were used not only for the last 18 months…but in the Great Depression in the ’30s…and in Japan in the ’90s? Have they ever worked? Nope. Never.
“Never expect the people who caused a problem to solve it.” Memorize those words . . . and bristle every time you hear the MSM talk about how the free market brought on this problem. It’s a calculated attempt to make us think we need more government.
From what I can tell, a lack of regulation in otherwise-highly regulated areas contributed to this problem, hence there’s a ring of truth to the MSM’s claim. But the fact of high regulation and governmental control is the real problem. If a domineering parent doesn’t give his spirited teenage son enough freedom, then the parent leaves for a month, the kid just might go wild and trash the car, the house, and the neighbor’s yard. It’s an imperfect analogy (the free market generally functions rationally subject to psychological blunders, whereas the teenager is a psychological blunder subject to rationality), but you see my point. If the market isn’t allowed to work like it’s naturally supposed to and then is kinda allowed freedom (strong regulation still there in theory, but very weak in fact or incomplete at points), it’s going to function in an odd, unpredictable, way.
A market bound by governmental controls is an unpredictable market, and that’s death on the economy. The market is always somewhat unpredictable, but the smart entrepreneur can read signs and take signals. If he does so intelligently, he reacts and is in position to make money. In the highly-regulated marketplace, the entrepreneur needs to “get into the head” of politicians, to try to see what their whimsy might dictate. When businessmen have to listen to presidential and Federal Reserve Chairman speeches as much as watch the stock market and the price of pork bellies, you know things are terribly out of whack.
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