Gold finger

Follow up from here.

According to the BBC, Gold has now hit $1,000 an ounce.

Now, mark you, this is a significant sign of recession. The beeb points out people are fleeing the dollar, looking for secure investments - gold is the ultimate safe commodity.

Imagine, as my previous post did, that we had gold backed currencies. If that were the case, what we'd be seeing now, would be massive deflation, as the value of money rose and rose, and more things could be bought. Prices would tumble, left and right. That is a classic part of a crisis.

The effect of a massive down push on nominal prices would be that firms would be harder pressed to make the nominal price of their debts. Many would go under.

The fact that we are under a fiat money system means such massive deflation doesn't occur. Instead, we have bankers behaving as if inflation is still the problem (and we have official government inflation targets).

Inflation in a time of economic slow down, I believe, is called stagflation.

Economics fun

OK, so, apparently gold has hit $855.10 an Ounce.

Lets do some maths. When the pound was convertable to gold it was 113.75 grains of gold to the pound/sovereign. So, to find what a gold sovereign is worth in modern dollars, we simple do (113.75/480)*$855.10 = $202.64. The BBC today is giving the conversion of dollars to pounds at 0.5043, so we multiply that by $202.64 to get a whopping £102.19.

Next, simply divide your wage/salary by £102.19 and you can convert yourself into a Dickensian person, earning a whopping £5 a week, or something.

Put another way, its a good reminder of relative economic wealth - all those trailing zeroes on your salary are just the fruits of inflation, the real gold value you possess says a bit more (obviously, this gold price is a high, and gold over the years has changed its natural value, but as an indication of the movement of incomes it has its uses).

This website gives historical wages, can you beat the wage of an agricultural labourer in 1931 (when the gold standard was abandoned)?