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Wednesday, April 25, 2012

Commodity and US Dollar Back To 1749

Chart Du Jour

By Tim Iacono   
It ‘s not clear how graphics like the one below (spotted at The Big Picture) are created since there probably wasn’t a Bloomberg-like organization to collect data for the price of sugar back in the 1700s, but, if the data is anywhere near accurate, it tells a fascinating story – not about commodities, but about the U.S. dollar.

The red annotations are mine, the point being that, prior to Nixon severing the last ties between the U.S. dollar and gold [1971], the only time there would be spikes up in commodity prices was during wartime. Then, after the wars concluded, prices would revert back to their previous levels (i.e., prior to WWII) – about what you’d expect to happen with a commodity based currency.

Of course, history will be the judge of the current era of pure fiat money. My guess is that, at some point in the not-too-distant future, the curve above will steepen rather sharply, the monetary system as we know it will get its RESET button pushed, and we’ll revert to something other than pure fiat money.

About The Author
 - Tim Iacono, a retired software engineer living in Bozeman, Montana, is the founder of Iacono Research. (EconMatters author archive here.)