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Friday, August 16, 2013

Your Good Old Days are Before You

Sometime in the early 1980s the State of NY put a cap of 8 1/2% on what banks could charge on home mortgage loans.

Guess what? Yup. The sale of homes dried up and realtors folded. Home values declined as well. Those events don't even show up on the graph below, but the pain was real. Consumer price inflation was a-roarin'. We recall my mother giving us two 5# bags of sugar for Christmas because it was selling for $5 a bag. Today I guess a "pound" of bacon is 12 ounces. A 1/2 gallon of ice cream is 1.5 quarts. A roll of toilet paper is so narrow that heavyweights have had to employ paper towels for clean-up. Why is it bumwad always takes a hit in rising inflation. Reese's peanut butter cups will soon diminish to the size of a ginger snap. What's with these 8oz. cans of beer anyway?

Ah, yes, the good old days.

But then, why is it a gallon of gas cost me 26cts when I began to drive, but now it runs nearly $4/gallon? Good thing I was never a big dollar saver, eh? Save, yes, by all means, but be very choosy what exchange medium you save and where you save it.

There's a big myth about gold floating out there that says rising interest rates are harmful to a rising gold price. The red plot line is gold's price. It lacks the last seven years because the aggregator didn't want to pay for the feed. But, you have a grasp of its price anyway.Insert the price "mentally".

It took a mortgage rate exceeding 17% to halt gold's parabolic response to a falling US$. That rate also produced a severe recession and put stocks on the floor. Look at 1987 and the green line. You'll see a sharp drop down, just a squiggle really, it is the 507 point one day drop! 

We have a long way to go (drop, may be a better word choice), before the Fed can capitulate gold, or will our politicians even have the fortitude to feel the wrath of citizens on the warpath. Words and promises will no longer do it.