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Monday, 4 February 2013

Money - a mechanism of diminishing returns

If one looks at the value of the UKP, USD, EUR AUD & JPY over the last ten years against GOLD the trends are evident.

You can right click and select 'open link in new tab' to see a large version of these charts

Not only have they fallen 80% in value over that period but they have, within a ferret's whisker, all faired much the same.  The UKP and the USD have been tracking each-other since 2009 previously the UKP was tracking the EUR.

Since 2010 the JPY broke through the value of the EUR to be running closest to GOLD but still the whole basket is massively floundering against this measure.

Regardless of the notion that GOLD is the true fixed measure of value (and all currencies have been enormously depreciated against this base-line measure) the trend between the currencies shows there is little real variation (and they are all heading to hell).

The AUD has broken out a little retaining a stronger position in comparison over the last decade (decayed) but viewed over the last two decades this can be viewed as less pronounced too - just matching the JPY.

The JPY has recently been artificially weakened but this can be seen as a correction of the effect resulting from the Tsunami which appeared to cause the currency to strengthen as a result perhaps of converting overseas investments to fund reconstruction work.

I don't specifically recommend GOLD as being guaranteed to produce, over the next couple of decades, or continuance of this level of apparent growth or resistance to depreciation (though I would not mind gambling that it will).  GOLD is as vulnerable to market manipulation as the currencies undoubtedly are.  I just wish I had put my eggs into a precious basket!

I am (clearly?) illustrating that all currencies have depreciated at consistent levels with each-other and demonstrate that adjustments in this parity are, on reflection, small.

I do not agree that governments want inflation to 'stop people hoarding cash and stopping the economy'.  A public that build-up reserves of cash under their beds is improbable if the banking system pays a viable rate of interest to stimulate investment with their deposit accounts. 

I conject that inflation is driven by central banks, not directly by governments, and that it suits the producers of money that the money they produce falls in value - that is their profit.  Inflation is a form of invisible taxation.

Money is a representation of value and so cannot be measured by itself only.

If balloons all leak air over time you cannot say my red balloon is unchanged just because your blue balloon has remained the same size as mine over the same period.  Or is that all balloony!

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