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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: shades who wrote (29573)5/7/2005 9:07:11 AM
From: Elroy Jetson  Read Replies (1) of 116555
 
A Roman gold coin, called the Aureus, weighed 0.234 Troy ounces. Today this amount of gold is worth $100.60 at a gold price of $430 US Dollars.

In 100 AD an Aureus could purchase 200 pounds of wheat flour. This is roughly the same amount of wheat flour you can purchase today with $100.60 US Dollars! What other forms of money have held their value so well for nearly 2,000 years? Let's see.

In 1968 the International Monetary Fund and its member nations chose to value pieces of paper called "Special Drawing Rights" as a superior substitute for gold. The US government would redeem US Dollars for either gold or SDRs.

Some people like your niece valued Special Drawing Right certificates, cheap electronics or Eight-Track tapes more highly than gold.

Unfortunately, so many nations and businesses preferred to redeem their US Dollars for gold rather than Special Drawing Right certificates that President Nixon felt it was necessary to officially suspended the convertibility of dollars into gold in 1971, along with imposing wage and price controls and a 10% import tax.

Why did so many people chose to save their money in the form of gold rather than paper certificates, cheap electronic equipment or music tapes is difficult to say. But this has been a characteristic human trait for thousands of years, likely longer.

One possible explanation is that gold is quite costly to mine or purchase, but Special Drawing Rights can be printed at virtually no cost. It has long been known that the relative scarcity of an object helps determine its value.

The purchasing power of Special Drawing Rights, and US Dollars, has declined substantially over the past 27 years. Cheap electronics from 27 years ago and Eight-Track tapes are virtually worthless. I hesitate to guess what they might be worth in 2,000 years.

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