I have often used the common tale of the “good suit” to explain the price of gold and it’s steady increase is really the story of US dollar devaluation…or what economists called inflation. I have now found a video that does a better job.

US Dollars Inflation Explained

The “good suit” story goes like this:

The cost of a good suit in 1920 was $20, about the same as an ounce of gold. Today, the cost of a good suit is about $800, about the same as an ounce of gold. So you see gold held it’s buying power over time while the US dollar did not.

This loss of buying power or devaluation of the US currency is called inflation.

Inflation is a hidden tax on the American public. Erosion of your wages paid in US dollars means you’ll have to work more to maintain the same standard of living. Politicians and economists complain the American public nevers “saves’ enough. As a matter of fact is was well publicised in the mainstream media recently when the American savings rate actually turned negative.

Well, the American public is smart not to save US dollars. Spend US dollars bfore they lose value is right way to go. I’m not advocating spending more than you earn, but holding on to dollars is not a wise strategy over the last 50 years.

Gold Price vs. Dollars Inflation Video

Enjoy…

Jim Rogers was interviewed by FT.com’s John Authers in Soul Korea a few days ago and he said some interesting things that those interested in precious metals should know. Rogers is worried about Obama’s pledge to tax capital, the US dollar, and the US housing and financial crisis…just to name a few things.

Jim Rogers interviewed

US Dollar Doomed

When asked about his thoughts on assets classes that will be profitable in this chaotic environment, he said,

“You buy the things that have been unimpaired”

Rogers is talking about commodities….including my favorite commodity…gold when he says “unimpaired”. Companies and their stock values can be hurt by bad management, political meddling, tax policies, and central banker tinkering….commodities can’t.

Commodities markets are very large…global in fact…and central bankers or Wall Street pundits can’t sway commodity prices that are not valid by the fundamentals. Rogers likes this because then the analysis becomes one of supply versus demand…and not a dozen other factors.

When asked when he’d get out of the dollar…he responded with,

“I hope I’m smart enough to recognize when to get out of the dollar because it is a flawed and even a doomed currency”

He goes on to say,

“The US Dollar is finished!”

Wow!

When Rogers says the dollar is doomed or finished….everyone should pay attention. We are in a nice little dollar rally right now (…and the gold price is stagnant because of it), but Roger’s sure this will be temporary and the dollar will return to historic declines. I don’t have to tell you when the world stops seeing the US dollar as a valuable storage currency, gold will skyrocket.

He was asked about whether the dollar weakness would cause politicians and central bankers to return to the gold standard, he said,

“I suspect not…but having said that John, I want to show you I got my own gold…just in case…I’m ahead of the game.”

Rogers then pulls out what appears to be 3, 1 ounce gold coins. The interviewer upon seeing the gold laughs like a giddy school girl taking a ride in a Jaguar for the first time.

Hilarious!

Politicians Will Make Things Worse

When asked about the coming recession he said, “The recession will be the worst since the second wold war”. I agree on the depth of the recession and have written extensively on the meddling of Treasury Secretary Paulson’s attempt to support the real estate market.

Rogers recounts the real estate bubble and mortgage crisis condemning the stated income programs stating it will take years to unravel. On this point I agree it will take years to get the consumers interested in home buying again. Even if demand rebounds, the availability of mortgage money will be suspect since the banking crisis will be in full force then.

Paulson can’t create a housing demand but in the attempt to “help” he’ll cause more harm than good. Rogers believes this as well referring back to improper tinkering with the economy by politicians during the Great Depression stating,

“What should have been a normal recession turned into a depression and it’s happening again.”

Couldn’t have said it better myself…you can watch the full video here.

Good Luck!
Rob K. Blake,
The Gold Insider