The Sixth Day
Friday, March 07, 2008
  Cheap Money!
Crude oil traded as high as $106.00 per barrel today and closed over $105.00. Wow, is oil ever expensive! Or maybe not. Could it be that money, specifically the U.S. Dollar is just cheap, as in of very low value?

Lets do a simple back-of-the envelope calculation and then you tell me if oil is high or the Dollar is low. When I owned my first couple of cars, gasoline was generally about 39.9 cents per gallon. When there was a price war, I once saw it at 19.9 cents, but most of the time between 1965 and 1972 it was within five cents one way or the other of forty cents per gallon. (That all changed in 1973 with the Arab Oil Embargo.)

The Treasury stopped minting 90% silver dimes in 1964 but most of them were still in circulation between 1965 to 1972. That meant that for four silver dimes you could buy a gallon of gasoline. Today, silver dimes minted in 1964 and earlier, of no particular numismatic (collector) value are sold on eBay for about $1.40 to $1.50 each.

So, you can still buy a gallon of gasoline for less than its 1965 price provided you pay in pre-1965 silver coins and can find a gas station owner creative enough to take genuine silver coins in payment.

Politicians still like to blame "the Arabs" for the high price of oil but the truth is that the 1973 Arab Oil Embargo came about because the purchasing power of the Dollars in which Middle Eastern producers were being paid had been steadily eroded to the point where they had to do something or submit to this form of legalized robbery. (Crude oil traded at $3.25 per barrel from 1945 to 1973.)

As long as the U.S. Federal Reserve keeps pumping up money and credit faster than the growth of production in our economy, oil and everything else priced in dollars will keep going higher.
Not because the things you buy are inherently more valuable, but because the Dollars with which you pay are inherently less valuable. Call it cheap money!

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Commentary about all things human; life, the Christian religion, ethics, politics, economics, sociology, art, anything to do with twenty-first century American culture. Perhaps I will inform, perhaps I will anger and frustrate, but I hope always to make you think!

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Location: Fort Wayne, Indiana, United States

I grew up in Kansas in the 1950's - 60's. I attended Kansas State (B.S. in Soc. Science) and Washburn Law School (J.D.). My wife and I have been married for over thirty years and are the parents of three grown sons.

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