Economics, Machines and the Real Value of Capital

This commentary is more a flight of fancy than a practical analysis (edit: maybe not. Read Here), but since it’s really intended to inspire thought, I’m going to throw it out there and see what sticks…

I’ve been thinking a lot lately about the 1998-2000 Parabolic blow off that ended the last big bull market in tech stocks. I’ve been trying to rationalize and gain some insight into how/why the  performance of the NASDAQ composite index has subsequently “followed” the performance of the S&P5000, when it is improvements in efficiency (enabled  by technology) that serves to depreciate the real economic cost of labor over time, resulting in improved margins across a broader swath of publically owned companies. In this context, it stands to reason that the tech-heavy NASDAQ should lead rather than follow.

I mean, computers are continuously making just about everything cheaper to do, and computers themselves continue to get cheaper as they simultaneously get MORE powerful (the beneficial consequence of Moore’s law); so how does the disconnect between rising commodity (input) costs versus lower output prices on the final products resolve itself rationally?

It stands to reason that if input costs are rising (whether due to currency debasement, or due to the legitimately increasing scarcity of resources), yet final output prices on finished goods are under consistent price pressure due to economically driven demand pressures, then the price of the second capital element (labor) must be falling in order to facilitate the lower output prices. These reductions in labor costs may be manifest as falling wages, or improved efficiency (fewer human jobs) via automation, or both.

Hmmm… Am I describing deflation? Prices trending lower as the real cost of labor, and therefore real incomes, decrease over time? Bah- I’ve never been a fan of “flations”; and I’m not about to start now- But I am convinced that labor is the key to this analysis, and that when this premise is taken to its logical conclusion, it implies that humanity will soon require a new and revolutionary look at how we value the product of time and effort that we commonly refer to as labor.

Under the current orthodox labor paradigm, people are compensated (paid), not for their willingness to work, but for their actual work output (units of work over time). But what will happen if/when our technological inventions reduce the final “price” of labor to zero?

The Further Impacts of Monetary Policy

The Fed’s officially stated position is that “a little bit of inflation” is the best way to run a currency centric economy, and I will not argue this premise in the context of the post industrial revolution, manual labor intensive economy where people supplied 100% of the labor- Which was the exact economic environment in place when the Fed was founded.

However- in the modern, increasingly automated economy, if people are required to work for wages in order to pay for the things that machines are building for next to nothing, then HOW, pray tell, can a "little bit of inflation" be a good thing over the long term?

Basic supply and demand theory tells us that if I can build one birdhouse for $10, but the next guy can build 2 birdhouses for $5 each, then he will get the business while I will starve, yes?

So, what happens when someone invents the technology to build an infinite number of birdhouses for exactly the cost of the input energy and raw materials?

The Fed's premise that mild inflation is the best guarantor of long term economic growth must fail entirely when technology and automation reduces the real cost of labor to zero.

We can not have "healthy" inflation in electronics while the underlying technology becomes cheaper and more powerful over time. Likewise, as the technology gets cheaper and more powerful, so too must the economic output of that technology get less expensive.  

For a realist’s view of this perspective, just talk to any former Wall Street desk trader who has been “downsized” by the “new guy” who hit the exchange with some fancy new high frequency trading algorithm in the past 5 years.

When it comes to doing economic work- The machines are gaining, and the people are retreating- and the machines work for free- they make no demand for compensation, they do not organize into unions, and they do not lobby for preferential legal treatment.

Taken to its final logical endpoint, one can only conclude that this is the point of catastrophic deconstruction of the current global financial system:

When the work is being done for free by machines, the earning power of people becomes zero, and economic growth/GDP becomes a "division by zero" impossibility.

On that day, the "wealthy" people will not be those who work the hardest; it will be those who hold domain over the energy sources and input materials, and intellectual property that the machines will require in order to do their work.

Those who choose to compete with the machines for labor will all, sadly, lose that fight in a most spectacular fashion. The final line between the haves and the have-nots will be drawn, and it will become nearly un-crossable.

So ask yourself- “Why are commodities (input resources and fuels) rising in price, while the market prices of finished products are under increasing price pressure?”

Are we hearing the first drumbeats of the eventual death of compensated labor?

I know, I know- someone will always be needed to program the computers, and to keep the automated machines plugged into the power grid, etc… right?  Well, as someone who currently earns his keep in this professional domain, I personally think that self replicating nanotechnology will answer the question for us within the next 30 years, and I’m pessimistic that there will be a consistent long term role for people once our technology becomes self-enabling and self-maintaining.

On the theoretical day that this scenario comes to pass, my theory is that money (in all forms) will finally succumb to worthlessness; and,  to the delight of many anti- Goldbugs out there, I’m happy to report that even Gold should finally become worthless as a medium of exchange, since Gold only really represents the intrinsic value of the effort required to extract, refine, and fabricate it- A value proposition that currently still makes it superior to printed currency coupons, but I digress....

The finality of this tech-driven “new reality” also pains me because it represents the moment in time that people will lose their right to choose whether or not they wish to exchange labor for their livelihood.

Where will we find the personal reward of accomplishment (or the incentive to excel and succeed) when we are no longer compelled to expend the time and energy, since any such efforts against the machines will be futile?

I recently wrote a blog entry stating that fiat currencies can only serve as money as long as there is faith in the currency, while Gold will serve as money only so long as there is faith in money itself- In other words, as currencies are fiat money, money itself is fiat capital- it serves as a safe, stored value proxy for work over time. But what would happen when the value of labor drops to zero? Shouldn’t the value of its capital proxy (money) simultaneously fall to zero as well?

When labor becomes a zero-value proposition, humans that wish to work in exchange for livelihood will constantly have to worry about how to feed themselves, while the humans who control the energy, technology and the raw materials will only have to worry about how to control their burgeoning obesity rates...

Even after falling back to Earth after such Flights of Fancy, I still maintain that the only safe long term capital appears to be real assets, but I also must concede that even this is a shaky proposition in the face of accelerating technology that aims to eliminate the time-value nature of capital itself.

At any rate- we’re on the threshold of a new paradigm, because “a little bit of inflation” just isn’t going to work for that much longer.

Robert At His Truly Most Random...

No long winded thesis today....  just some juicy tidbits to inspire some thought:

1) The Military Industrial complex:
Our (the good ole UsofA's) military only exists to secure oil in order to maintain the policy of killing foreigners. We extract oil, and burn it in the planes and tanks we use to invade other countries, in the interest of securing more oil to run through our tanks and planes as we look for still other countries to invade in the interest of securing more oil... Brilliant in it's elemental stupidity.

Our military has not defended a US border since the war of 1812. (that was 199 years ago, friends)...

and no, Pearl Harbor does not count. Hawaii was not a state during WWII. Hawaii was a sovereign territory that did not become a US commonwealth until AFTER WWII was already underway. Neither does the Civil War count since the North (represented by the same Federalist Union Army that serves as today's military) invaded the South, not the other way around.

2) Speaking of the Civil War:
The more I study this dark time in history, the more convinced I become that this is the period where the US train left the tracks of Liberty. In the interest of sovereignty, the South should have been allowed to succeed. Slave ownership would still have become a dead practice within 5 years, without all the bloodshed.

3) The Birth Certificate:
Bah, I'd rather see why he's hiding his college records. Perhaps they expose the fact that the first digit in his Cum GPA was a 2...? At any rate- Any President who publically espouses greater governmental transparancy while simultaneously hiding his own dirty laundry from public view is clearly a hypocrite, and certainly not trust worthy. People with nothing to hide, hide nothing.

3) The US Media:
Completely corrupted by the fact that journalists have sold themselves and their ethics down the river as a matter of job security... the pussies.

4) 2012 and the Mayan calendar:
Dec21 will not get here soon enough for me. Let's get this shit over with already and move on to what's next.

5) Bankers:
Scape-goats. Bankers did not cause the mess we're in- they are just to stupid to understand that they are tools of a corrupt system. The core problem at the heart of current economic issues is that people have lost sight of what's IMPORTANT, and what is not. I blame this on the endless, in your face, now is the most important moment of your life stimulation being piped into our brains by the LEAST important information sources out there. It reminds me of the experiment where the electrode was inserted into the pleasure center of the monkey's brain and he was trained to hit one of two buttons- one to trigger the pleasure sensor, and the other to give him food... and the monkey promptly starved himself to death, while the pleasure stimulating button was nearly worn out. It's pure addiction.

6) Speaking of Technology:
I'd rather be fishing than texting.

7) Speaking of Fishing:
I wish I was, right now.

8) Speaking of wishing:
I wish I was retired.

9) Speaking of Retirement:
I better get back to work or else I will never be able to...

Why America will make it, even if the United States does not.

I'm sick of reading about the debt ceiling. Seriously. Let’s just get this default underway and move on to the cleanup process, shall we?

I was born in the late 1960’s: Too late to observe the race riots, the hippie movement, or the Vietnam War based social upheaval; so my understanding of these events is derived only by what I’ve read, juxtaposed with my observations of certain historical parallels occurring today around the world.

One thing jumps out at me: back then, Americans seemed to be moved to activism more readily, while today, everyone is waiting… waiting for “another shoe” to drop. Waiting to see their stock accounts wiped out again. Waiting to see gasoline rise to 50% of their monthly expenses. Waiting for the government to announce the next layer of added “security” at the airport. Waiting for the debt ceiling to be raised in the 11^th hour before Tim Geithner officially declares the end of the civilized world…

Waiting.

Meantime, I enjoy talking to people. I enjoy hearing their viewpoints.

I ask people if they think America is a free land- the answer is always (100% of the time) “yes”

I ask people if they trust the United States government- the answer is always “no”.

I ask if they believe in the integrity of an economy organized primarily by a military industrial complex that exists only to secure fuel supplies, build planes and tanks, and run that fuel through those planes and tanks killing the people that stand in the way of securing more fuel- The answer is always “no”.

Sometimes, just for kicks, I ask people if they believe the US President is qualified for the office he holds- surprisingly, the answer is “no” more often than it is “yes”.

Then I start asking the hard questions, like “what do you think we can do about it?” and the answers start getting a little frightening, because most often the response is “They have to raise taxes”; to which I always follow up  with “Who are THEY? The same people that endorse the destructive policies that are creating this mess?” – I usually get a stunned silence in return.

I ask if it is the job of the many to finance the destructive whims of the few? – This question rarely gets a yes or no, but that’s ok, because it is intended only to inspire thought.

 I then proceed to drill a little deeper and ask if people WANT to pay more in taxes, the answer is always “no”.

So, with a solid foundation poured, I ask my final question:

“So, do you truly live in a free land when you are forced to relent to doing something you don’t want to do, only because someone else tells you it’s what’s best for them?"

The only correct answer to that question is “no”, and yet the most common reply is “no, but…”

No, But...  and the "buts" always run a gambit of excuses from “the US is spoiled” to “We have too much while the people we kill around the world have too little”, or, “If we don’t keep a strong military, the boogeyman will get us”

Now, most analytically minded, self reliant souls would probably immediately dismiss the respondent as just another sheep- waiting for the sheers to come out, but I see something different.

I see a nation of people who are absorbing and harboring an enormous amount of guilt (whether willingly or sub-consciously) for the actions of the few who declare themselves “leaders” as they recklessly pursue destructive agendas around the globe.

I believe that people are slowly realizing that within the United States’, ethics and integrity have been compromised. Even if they do not understand the complexity of the problem, or what they can personally do about it- a growing number of us do realize that something is terribly wrong, and more and more are awakening to this realization every day. In other words, more and more citizens of the United States are starting to realize that they are actually Americans.

It was Edmund Burke who famously stated that “Evil is allowed to flourish when good men do nothing”; and a sizable number of the “awakened” among us alarmingly hold no faith that America will grow the backbone necessary to revolt against the growing corruption and tyranny of the United States Government. I don’t believe that for one second.

I believe in markets, and there is a market out there for information and understanding, and this market is growing relentlessly. People are beginning to pay attention to things that they never did before. They still might not understand exactly what is going on, and they might not be able to distinguish truth and fact from lies and misinformation, but at least they are perking up and starting to see trends in motion.

Behind every lie, there lives a corrupted truth. As this market for information grows, the information must be distributed and disseminated as either truth or lie by as many people as possible. Now you know why I write.

So, how will America survive? Because America isn’t a place; America is a common spirit founded exclusively upon the integrity of Truth, Justice, and Liberty.  Period.  

It is only the United States where Justice has been corrupted (by Federal Law) in order to allow Truth to be perverted by lies in order to deny Liberty. This place is NOT America.

America is, once again, the growing  group of people that is slowly realizing that the corrupt military industrial economy is financed by bank notes that are backed only by the “Full faith and credit of the United States”, and these bank notes are losing purchasing power (globally and domestically)at a remarkable rate- Do you think this is an accident? It may not be what the war-mongering power brokers want to see; and they will not go down without a fight and, unfortunately, without more economic pain; but the underlying trend isn’t an accident, and the movement is not going to lose momentum.

Self-awareness is the first step to understanding the world you live in, and people are slowly becoming aware that things are just not right. 

Information, integrity and truth are always a far more powerful currency than lies, fear and corruption.

If the United States fails, everyone doesn’t die- the sun doesn’t stop rising, and most importantly- we will not cease to be Americans.

America will make it, because I believe it will- and as Captain America says- we all have to stand up for what we believe.

Ahhhhhh, Easter.

Easter- that spring time holiday when Christian families gather around a feast of Rack of Lamb with Mint Jelly (or, in the Southwestern USA, 2 inch thick Ribeyes on the B-B-Que) and argue about who in the family will win the "free trip to heaven" lottery while the rest of the family heathens roast in the eternal B-B-Que of damnation....

Fun Stuff.

Invariably, my personal affinity and understanding of physics, economics, biology, sociology, and all the natural processes that intertwine them makes me the perfect target of the "Darwin was Satan, and the Bible is the immutable word of God" dismissals of those who have it all figured out and find my incessant and prolific study, meditation, and rationalization of the world around me as a fool's errand when, in fact, all I have to do is accept that blind worship directed toward Jesus Christ is the only path to eternal salvation.

Now let's be clear- I'm a huge fan of Jesus. I don't think there has been a human before, or since, who has so loved the Earth that he gave the ultimate sacrifice so that we would all be allowed to continue living as the lying, thieving, and whoring sociopaths that our nature seems so willing to reduce us to.

The question of whether Jesus was God incarnate, or just some atypical guy who REALLY had it together intellectually and emotionally, is the ultimate question of Faith. For me, the question is moot. Jesus in Human form was as much the personification of God as any of us are. To the question of faith- mine is unwavering, but so too is my unfaltering allegiance to the practical teachings of Jesus; meaning that if I live my life as Jesus lived his (without trespassing on his neighbors, facing and confronting human corruption and evil head on, and walking the path of enlightenment) then our walk with Jesus through this life should be (to me at least) measured as a success.

To the question of worship, things get a little more shaky for me. Jesus did not teach his Disciples to worship him. He did not ask them to, and from my own interpretations of the Bible (having read it 6 times) I just don't think he WANTED  to be worshiped. It was after his death that Paul (who is still debated as to his Apostle status) began designing the dogmatic and ritualistic worship practices that would eventually comprise the roman Catholic church and all it's more modern off-shoots. There is no historical record to suggest that Jesus had any part in mandating any worship centric dogma.

The most self-aggrandizing thing Jesus is recounted as saying is simply to the effect of "eat some bread and drink some wine, and remember me when you do so that my loving spirit may live on in each of you". He didn't say anything about building temples and monuments to him.
 
If you believe Jesus is God, then you must also believe in the infinite love and infinitely transcendent intelligence of God. So how would such awesome power of intellect and emotional grace require such feeble expressions of exaltation as singing and waving your arms in the air every Sunday ? I'm not blasting those who choose to worship in such manners (hey- I like to sing every now and then too), but I am challenging that said practices are a mandatory part of the path to salvation.

Of course, On Easter Sunday I had to ratchet up the discussion by asking the age-old question "If Jesus is the only way to the light, then what about Moses and everyone in the old Testament?", to which the response is somthing equivalent to "well, everyone before Jesus got a free-pass to heaven"; but my Brother in Law actually (for the first time in the hundreds of times that I've asked this question) gave me an answer that aligns with my own interpretation of the Bible- The Mosaic Law- that immutable law from God that tells us that we have the inborn power to distinguish Right from Wrong. Abraham, Moses and everyone else in the Old Testament strove to do right by God, and they were rewarded for their efforts. Those who did not strive to do right, got the express elevator down, or were washed away in floods or turned into salt pillars (I must say- the "sentences" passed down on judgement day in the Old Testament were infinitely more creative- there are some folks I can think of today who could use a good dose of salt-transformation; but I digress)

So, The question of whether "works" (defined by the Mosaic Law) or whether "declaration" of Jesus as savior is the most important component of the Christian's walk through this life remains unanswered, and frankly, I think it will always be, because there is no definitive or comprehensive verse in the scripture that prevents the question from devolving into a political debate, and to me, politics has dishonesty at its core, so it can therefore not be holy, and so I must refuse to engage in a political debate surrounding the basis of faith. I'll debate the politics of fiat currency creation and the evil of Central Banking, but not faith.

But, back to nature (and Darwin).  Evolution is at the heart of the Christian Creationists battle with science. I'm here to tell everyone who can claim an open mind that both sides of the debate are absolutely, 100% correct. Nature and organisms most certainly evolve over extremely long time horizons, branching into what science would classify as new species along the way. We see it in on a micro scale with bacteria that mutate to form resistance to antibiotics, We see it in the adaptive understanding that Humans are not the only species to care for and nurture their young...

In fact, it is caring for our young that seals the debate for me- it demonstrates how Darwin's "survival of the fittest" mantra fits perfectly with the eternal, intellectual love of the creator of the Universe.

Atheistic evolutionists like Richard Dawkins declare that our intelligence (and our conflicted nature)  is the random remainder of an unsolvable biological equation; but, to believe in the random origination theory of evolution requires a faith far stronger than simple faith in God (or some other intelligence that transcends the physical barrier of our Universe). This point makes the athiest the ultimate hyprocrite.

I contend that intelligence can not exist at all without Intelligence existing (how's that for circular logic?) Let me elaborate:

Intelligence exists in this Universe- you and I are irrefutable proof of this inescapable fact; and because the fact of existent intelligence is infallible, the argument of random origination evolution REQUIRES any and all Atheistic, random evolution theorists who ascribe to Dawkins, to maintain unswerving FAITH that intelligence is an accidental by-product of the evolutionary process. I’m afraid this makes them every bit as religious as those who choose to thump their bible and condemn everyone else to hell…


The ability to rationalize (or to reason) is what gives rise to intelligence, and yet the ability to rationalize is nurtured, fostered, and passed on through the generations- good choices are rewarded, poor choices are punished, and REALLY poor choices (like stepping off a building because you think you can fly) get you a one way ticket OUT of the gene-pool. Strong genetics continue, weak genetics fail. This is Darwin's theory in its most elegant form- the process of natural selection that relies on favoritism passed down through the generations.

And yet, there is no Darwinian process that accurately describes the emergence of reason and rationalization. IE: no one can describe the natural circumstances that inspire the process of passing knowledge learned to the next generation; but there is another point here that I think we can all agree on- The process of passing our knowledge to our offspring, and to others in the population whom we favor, is one that we undertake out of love or favoritism for those that we pass these lessons to- we want them to enjoy the Darwinian advantage of what we have learned, yes? And so, if this natural process is born out of love, and yet the end result supports the concept of slow change and evolution over time (as intelligence advances, society advances, and by extension the species advances), then I have to ask how a loving process can be distorted into evil by those who choose to fixate on the political nature of religion?

The Atheist Dawkins and others like him may dismiss intelligence and rationalization as a random by-product of evolution, but I ask you- how random can this process truly be? If the accidental by-product theory of intelligence is accurate, then how is the power of choice justified? Why are right choices rewarded, and why are wrong choices punished? This is all to coincidental to me to be merely random.

Ayn Rand said she could not prove there was God, so she chose not to waste any time debating the topic with herself.

I choose to think that God is simply the loving favoritism we share with each other.

Intelligence begets intelligence. The fact that intelligence is the ultimate gift we pass from generation to generation means that at some point far back in our Darwinian pre-history, this precious gift was passed to us for the first time by the loving intelligence that is the parental source of our own (sometimes) loving intelligence.

My last contribution to this discussion is simply that evil can not exist without good, and that goodness is not commonly considered as the corruption of evil, while the inverse definitely is a commonly held viewpoint; So the question of God (the loving favoritism we share with each other) as the ultimate Universal force of good seems to be a lock, and yet at the same time one can not decry Darwinian natural selection as evil lest they choose never to eat again, for every calorie required to sustain our biological selves comes from a formerly living organism of some sort. We must kill to survive, which seemingly makes a mockery of the 6th commandment and challenges the viewpoint of the Bible as the "irrefutable" word of God. If it truly is the word of God, then it is written in God's language, and we are too stupid to translate it accurately...

So I am left with my logical understanding, and I am left with my personal beliefs and faith.

The only logical conclusion I can draw is that there is a God, because we have been blessed with the ability to ask the question and to rationalize the answer, but in reality, the logic is completely irrelevant to me.

I know there is a God because I have felt the natural advantage of God's love for me as I have journeyed along my own path through this world.

This post is based on an original post on zerohedge,com, authored by Mark McGoldrick

on Thu, 03/03/2011 - 13:19
#1015635

It's truly amazing to me to see American citizens complaining about the society in which they live. Whether it's about the number of people on food stamps, ponzi scheming financial sociopaths, government bailouts of high-income plutocrats, or manipulated financial markets, there seems to be no end to the disgust that so many (Dems, Repubs, and Libertarians) have toward this country. Yet, at the same time, no one wants to leave the cozy confines of their middle class lifestyle to do anything about it.  I'm beginning to think that the cornerstone of American anger is simply just cynicism - all bitterness, but no action.

Meanwhile, look at the courage displayed by many other oppressed middle/lower classes around the world. ZeroHedge prominently displays all the rioting around the world on a weekly basis - thousands of oppressed people marching through their streets protesting governments and dictatorships that are not so different from ours. They are the ones with courage - not us.  We just rant on various internet forums, hoping that our cynicism will change something without having to put forth much effort.    

You can complain all you want, yet this is the "free" society that you have allowed to happen. When all you do is rant on an internet forum, then you are equally complicit in the demise of our country. What is the real difference between the ignorant masses who are sedated with American Idol and a bunch of cynical libertarians who know it all, yet do nothing about it?

The answer: nothing.

When you truly want your freedom (that is, not just ranting on the internet), you will stand up and stop allowing yourself to be treated like a slave.  Until then, that is all you are: a slave to the plutocrats who take the wealth of your labor and do whatever they want with it.

It's simple, uncomplicated social darwinism playing out.  The plutocrats bought your representatives, stole most of the wealth of your labor and devalued the little they allowed you to keep; that is the end result of a free society, and, ironically, the end result of libertarianism: the strong oppress and manipulate the weak.  Our big government which is owned by the plutocrats is simply the best vehicle to keep this charade going.  
So, how does this relate to food stamps?  Government subsidies are just more lubrication to keep the charade well oiled.  The plutocrats will make you work a little harder (which you will because you always do), so you can pay a little more in taxes (which you will because - again - you always do), so the plutocrats can take more of your labor (which they will because they always do) and feed it to the poor and lazy, keeping them just complacent enough not to revolt, loot and disrupt this fantastic wealth sucking paradigm that the plutocrats have crafted. Keeping the poor complacent is just another cog in the wheel.

We deserve this fate, because we do nothing about it.

Why Gold?

Ok, This one is for everyone who asks me "how high can Gold really go?"

The question is always phrased that way, and the more correct question is "How low can the dollar really go?"

The US dollar is money, just so long as there is faith in dollars. We call this faith currency. Those self-imposed power mongers back East call it legal tender, as if there were such a thing as "illegal tender" (which the laws and principles of Economic theory clearly state is impossible, for neither money nor debt have to exist at all in a healthy economic system- barter works just fine)

As monies go, Gold differs from dollars in that: so much as dollars are money as long as there is faith in currency, Gold is money so long as there is faith in money itself- that is: if things were to get so bad that people were unwilling to trade chickens for Gold, then I suppose the richest people on Earth would be chicken farmers....

Now, how does savings factor into all of this? Well, the money we save today, we intend to use tomorrow, right? We therefore need to rely on keeping our savings in a form that will purchase as much tomorrow as it purchases today. For this reason, the US Dollar completely BLOWS CHUNKS as an instrument of savings.

Today's savings are tomorrow's capital. So, let's expand on capital:

Chickens are consummable, and perishable- therefore they make miserable long term capital. Money (in any form) makes great long term capital because money is durable. Now, loop back to the point above about USdollars. If the only existent faith in US dollars is that they are money that will not purchase as much in the future as they purchase today, then ask yourself: should dollars be considered as good capital?

I hope you are shaking your head and saying "No Robert, they should not" because that is the right answer.

US dollars are best used TODAY to buy the chicken you need for dinner TONIGHT. They should not be relied on to ensure that you will still be able to buy a chicken for the same number of dollars two months from now.

To secure your future, you need a money that does not erode in value. A money that serves as a proxy for capital until the day that faith in money itself is lost.

Another way to look at it is that dollars (and other printed currencies) are fiat money, and money itself is fiat capital.

Money only serves as a proxy for the stored value of work- IE: If I work sufficiently hard and produce more than I consume, and I grant you that excess in exchange for something else, then that something should appeal to me as equivalent in value to the value of my work, right?

If you dream of the day that you will have enough money that you will no longer need to work, then you need to preserve the "work-proxy" value of your saved money. That should be a no-brainer.

5000 years of Human history (with the plausible exception of the notably brief period of 1981- 1996) tells us that one monetary instrument rises above all others in preserving its "work-proxy" value:

Gold.

If you need a more "democratic" perspective- think of it like this:

The population of Earth is 6+ Billion, and half of these people are either Indian, or Chinese, and a very much smaller percentage are Americans and/or Malaysians.

Now, the Chinese and the Indians perceive gold as money, and they value Gold extremely highly (much more highly than they value their respective countries' printed currencies), so we have at LEAST 50% of the world's population in Gold's corner already, and the Malaysian's have the only Gold-backed currency on Earth at present, so they might have just tipped the Democratic scales to 51% of the vote...

The missing piece of the inflation puzzle....

I don't know if you 've noticed, but food prices are acting like they just left the ramp on a ski-jump.

Corn, Rice, Sugar, Wheat, pork bellies, you name it... it's up in price.

But there is no inflation. Ben Bernokio (oops Bernanke) went before Congress again yesterday and soothed everyone's nerves again... prices are NOT rising on big screeen TV's, houses, cars, or yachts, so there simply is NO inflation.

Whew, I sure am glad I believe Ben Bernanke- after all, he showed his gifted Oracle prowess when he called the top in the housing markets, and when he assured us that Fanny and Freddie were well capitalized, and that Bear Stearns would be able to pay its liabilities...

Oh, wait a minute, that's right- Bernanke was 100% wrong on all of these- in fact he was perfectly 180 degrees opposite from reality.

Well, the more frequently wrong a person is about stuff, the better the odds are that they'll get something correct eventually, right? Maybe it's Ben's time to call something right, so let's all enjoy our $8 dollar flatscreen while we eat our $100 hamburger... Wait, I've got those numbers backward. ooops.

To actually give Ben some credit regarding inflation, there is one point I do agree with him on- we don't yet seem to be on the launchpad of a big jump in prices across the board because nominal incomes (incomes priced in dollars) are still not accelerating upward.

With the US population screaming at their congresspeople to take away Wall Street's bonuses, and with Wall Street actually off by a cool 500,00 jobs, and with the rest of the country languishing in 9% unemployment (18% if you use the pre-1970 calculation method) it seems that no one is earning any of the Trillions that Ben and his BFF's at the Treasury are creating like they had just discovered Gutenberg's little invention last week...

Ok, so if Ben's plan is to continue creating dollars, and relying on the fact that none of those dollars are going to end up in people's earnings or salaries, then where are all the dollars going?

Why is Wheat going up?

Why is Corn going up?

Why is Gas going up?

Why is Gold going up?

Have you seen the price of Copper? I have to imagine that the number of vacant foreclosed houses about to have the plumbing ripped out and sold for scrap is about to make a moonshot.

How can any of this be happening when there is no inflation, and no one is seeing any salary increases?

Well, it turns out to be simple. It's because people who own and sell Corn, Wheat, Gas, and Gold are simply not selling them for fewer dollars- they are holding them until a higher bid comes along; and with all those crisp new dollars floating around out there, higher bidders are not too hard to find.- especially when one bidder is JPMorgan ( the Federal Reserve's Bank) and another bidder is Goldman Sachs (the Treasury's bank). These guys are the "Primary dealers" that have access to the Fed's "Discount Window" ; meaning that they get those crispy new dollars handed to them through a drive-through window (they might even get fries with them, who knows?)- Either way, they have a sweet deal- The Fed says "take this new cash (that has not been circulated, so it has not been devalued that much yet) and as long as you buy US Treasury Securities with 60% of it, then the other 40% is yours to pump up the Stock Market and commodity markets."

Well, who wouldn't want fries with that? These guys are getting the same legal tender money, that you and I have to work for and earn, for free, and they are using it to buy the same things that you and I need to take care of ourselves and our families- namely food, gas, and industrial materials.

It doesn't sound fair, does it? Well it's not. So, why haven't you written your Congressman and Senators yet?

Look, if you depend on an income (as I do) to support your standard of living, then you've got two choices:

1) Keep earning the same number of dollars in a nominal sense, and stand by wondering why the grocery bill keeps rising closer and closer to par value with your weekly paycheck.

or:

2)  Convert your dollars into currencies and monies that do not devalue as more and more of them are printed into existence.

Real income rates are falling- America is getting poorer. The cost of raising a family is increasing...

...And Ben Bernanke is doing the exact opposite of fixing the problem.