Editor's Note-- In the article Is Gold really a good Inflation Hedge? I said, Gold is actually a "crisis hedge." So it should be performing extremely well with all the uncertainty in the markets right now. In this article Andrew Gordon explains how gold is currently in limited supply and demand is booming due to the crisis and what is currently affecting the price. -- Tim McMahon, editor Has Gold Lost its Investment Luster? By Andrew Gordon Gold dropped from $915 to $859 on Friday [October 10, 2008]. That’s not supposed to happen while the market is crashing. What’s going on? … [Read more...]
Cheaper Fuel (Gas) Prices Ahead
By Andrew Gordon The stimulus package has come and gone. And retail sales are once again feeling the pinch. So, should the government put together a second package for exhausted consumers? After all, if the government can afford to throw $300 billion at Freddie and Fannie, certainly the government can spend another $145 billion to boost spending going into the holidays, right? But with gas prices going down, maybe we don’t need another stimulus package. I was asked yesterday by CNBC if lower gas prices would help spending and boost the economy. I said it wouldn’t help much. A quick look at the numbers might suggest otherwise. After all, every penny increase for a gallon of gas … [Read more...]
How does the “Falling Dollar” and the exchange rate affect Inflation?
With all the recent talk about the "falling dollar" will that affect the inflation rate? Let's start with the basics. 1) Price inflation is primarily caused by monetary inflation. In other words as the money supply increases things cost more. See What is Inflation? for a full explanation. 2) The government controls the money supply to a certain extent through tightening or loosening credit. 3) The economy is extremely complex and many other factors come into play. Such as international exchange and the supply and demand for goods and services. At first blush it might appear that the falling dollar would cause deflation because the dollar is going down. But if the dollar is … [Read more...]
Inflation similarities between the 2000s and the 1970s
"even though we have not seen the volatility of the 70's we are certainly traveling in the same direction." In the 70s, gold spiked to over $800, Inflation rates were over 14%, OPEC limited the supply of Oil, there were wars in the Middle East and the U.S. economy was a wreck. In the 2000s, Gold has doubled from $250 and ounce to over $500, inflation has doubled from 2% in 2002 to over 4% in 2005, Oil supply is maxed out, the decade began with a recession... is there any chance that we are returning to the 70s? Recently I was asked, whether I saw any similarities between the 1970's and the current decade. And that got me to thinking. If you remember the 70's culminated in a double digit … [Read more...]
Hurricane Katrina: The Economics of Disaster
The Economics of Disaster: Are Hurricanes Inflationary or Deflationary? Insurance companies have estimated the damage from hurricane Katrina at $25 Billion Dollars. But the economic effect is much greater than that. That is just the loss of property. Another consideration is the loss of revenue while things are being rebuilt. What about the loss of jobs from the companies who won’t be rebuilding because they didn’t have insurance? According to the “Financial Times” current estimates of “total economic losses” are closer to $100 Billion. Those numbers are so large that it is almost impossible for us to get our minds around it. If you stacked 100 billion one dollar bills on top of each … [Read more...]
Affordable Luxuries?
According to the January issue of "Wired" magazine luxury items are more affordable than ever. They picked several items and adjusted their prices for inflation and found that in inflation adjusted dollars many luxury items cost less than the did 10 or 25 years ago. How can that be? According to "Wired" the price to charter a plane for an hour was $3,016 in 1980 but was only $1,850 in 2004, a decrease of 39% over 24 years. A BMW series 3 was $40,945 in 1995 and is $30,840 now a decrease of 25% over 10 years. Other prices they compared were Dinner at the 21 club $114.66 in 1987 and $87.50 in 2004 for a 23% decrease over 17 years. LaPavoni espresso machine $1,242 in 1975 and $550 … [Read more...]
