Author Topic: How governments cheat with money  (Read 4672 times)

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The Prophet

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How governments cheat with money
« on: August 19, 2013, 02:47:49 pm »
"With money, what you see is not really what you get." says Bill Bonner in his MoneyWeek column.
"Governments like to have control over money. With control over money they have control over people, control over their cost of living, their assets, their time."  At one point you could even buy people with money!

When money started out it was bullion based.
It made state cheating harder (but not impossible) to do.
Because the amount of gold or silver could not be easily increased, the purchasing power of bullion money was stable over many years.
Indeed, you could buy as much with an ounce of Gold in 1560 as you could in 1860.

Once governments took over the minting of the money used, they were able to start cheating.
Making coins a little smaller or by adding quantities of base metals - 'de-basing' the currency. 
Paper money came later and was fine as long as it was backed by physical gold at a fixed rate.
But paper money gave more opportunities to cheat the people and once Nixon took the dollar off the Gold standard paper money became worthless.

In the US, official figures show that $1 in 1950 would be worth $10 today.
A house in 1950 sold for less than $10,000. Today (even after the sub prime crash of 2008) the same typical house sells for $150,000.
So you need 15 times as much money to buy an average house.
Let’s look at Gold.
In the 1950’s it was relatively stable at around $48 an ounce. 
Today it is $1200 an ounce due to inflation and curreny devaluation.

What about earnings?
After the war a typical wage earner would get $250 a month around $3,000 a year.
Today the typical wage is $30,000 a year, ten times more in nominal terms.
So discounting the effects of higher taxes, you would need five years wages to buy the house today, compared with around 3 years wages in 1950.

In the UK the average house was £2,100 in 1950, meaning it would take 5.7 times average salary of £368.20 to buy it.
Today in the UK the average house costs £232,969 and with an average salary of £26,500 it would take 8.79 years to buy.

Only real assets like property and gold will enable wealth to be retained and even then
the state could pass a law and confiscate it.