Independence Day Memories of a Stronger Dollar, Lower Costs

By Brad Zigler

As you groom your barbeque for the upcoming holiday cookouts, think of the history that will be celebrated in speeches and fireworks displays on July 4, America's 232^nd Independence Day.

The United States shook off an imperial yoke and now stands as a ...

Ah, heck. I can't do it. Today's July 3. There's a milestone that can be celebrated today. There are but 200 days left in the administration of George W. Bush and Dick Cheney. Okay, not so much a celebration. More like the beginning of a countdown.

We don't wax political here. It's all about the number for us at Hard Assets Investors. But let's, just for a moment, recount some financial milestones passed since the Oval Office was last re-carpeted.

On Inauguration Day 2001, a euro could be bought for 95 U.S. cents. Now, it takes $1.58 to make the same purchase.

A barrel of oil on January 20, 2001, could be bought for $32. That's $112 less than it costs now. A bushel of soybeans was a five-dollar purchase back then. I won't bother with the litany of other commodity price hikes. Soybeans have risen from $5 to $16.50 and corn's surged from $2.20 to $7.50 - due much to weather, which I don't think the administration controls. (Please send me a note if I'm wrong.)

The rise in commodities prices are evidence of the inflation wrought, in part, by the desecration of the dollar. Inflation's been on quite a tear over the past couple of years. More than a third of oil's price hike, nearly $52 a barrel, has been due to the deleterious effect of currency inflation in that time.

Not that you would know it from reading government reports. Money supply numbers, which used to be followed so closely by economists and pundits, have been back-burnered recently. Especially since the U.S. Federal Reserve stopped publishing the full set of numbers in 2006.

Monetary aggregates M1, M2 and M3 are nested, Russian-doll-style, one within the other, with M1 as the smallest. M1 counts cash and assets that can be readily converted to currency. M2 subsumes M1 together with small deposit accounts and noninstitutional money market funds. M3, the broadest measure, and used by economists to estimate the entire supply of money in circulation, is calculated by adding large time deposits, institutional money market funds, repurchase agreements and other large liquid assets to M2.

The publication of M3 was suspended by the Fed in 2006, but it is still privately compiled. The Fed opted to discontinue M3's publication just in time, say critics, to hide its inflationary tracks.

If you just look at M1's trajectory, you'd think the United States is an inflationary hawk, pinching off liquidity recently. M2, and especially the "shadow" M3, however, tell a vastly different tale.

Source: ShadowStats.com

The government will bestow a holiday treat upon us later today when it releases the monetary aggregates - all two of them - for June.

They might be cause for celebration, but don't get your hopes up. Enjoy your Fourth instead.

Comments

[msoori:]

You can control only what is within your means. Make your own financial independence day!

digg.com/business_fina...

2008 Jul 04 09:23 AM

[fran:]

ah, we rue the day the FED was invented, 3 billion Eurasians decide they desired our lifestyle, and the voting public became enamored with Gerrymandering and stopped thinking for themselves.

VOILE!!

let's have congressional hearings on these ills. it well could be those "speculators" again.

2008 Jul 04 06:14 PM

[Jason Rines...:]

Let's boil it down:

1) The Efficient Market Hyposis has failed
2) It began showing cracks in Clinton's reign with our buddy Alan Greenspan further promoting it.
3) Cracks became holes in 2006 and the Bush Admin and Congress should have responded THEN and told Greenspan to shut up!
4) Greenspan liquidating his mortgage securities in June 2007 while telling chance of a recession driven by real-estate was 25%. I am glad I have the ability to run my own numbers. My grandmother who lived through the Great Depression was correct - 'never trust a banker, they LOVE foreclosures.'
5) We had best get past the denial stage which we are still in (just barely now thank GOD) and into the anger and bargaining stages to acceptance so we can become organized and be prepared for the sacrifices so many will have to make.

On the 4th, I was the most cheerful I had been in a year! My countrymen at my house, nervous and fearful but ready to take action... I am NOT leaving, I am will take care of my neighbors and take on government in 2012 when I run for Congress. I will not sacrifice my honor by fleeing. That doesn't mean I won't hedge my bets both physically and my investments. Good luck my countrymen! Many of us shall rebuild and we will dictate our rewards for our service when it all settles back down.

2008 Jul 06 05:51 PM