Why support the Gold standard?

As someone just getting started planning my future retirement, the pending collapse of the dollar and our great country’s economic standing is of prime concern to me.

You get a shockingly different picture of our economy if you convert the value of homes and the stock market into alternatives, such as oil and gold. Check it out:

Americans have lost something like 50% of our wealth since 2000 (in measured in how much gold and oil you can buy with a share of the stock market). Meanwhile all our congressmen want to do about it is print out ever more paper — this paper means about as much as the rest of their empty promises. It is easy for the stock market to go up 5% per year when the dollar is losing 10% a year.

I have a passport; I plan to visit foreign countries during my life; nothing I buy is made in my country. When the purchasing power of the dollar falls twice as fast as our economy is growing, I’m becoming poorer.

My country’s government and its policies are destroying any wealth I build up and maintain in US dollars.

I have good things to say about one analyst in particular on Fox Business, Peter Schiff. I first heard his commentary in August when I was worried about the stock market crashing. He was the only analyst that made any sense to me — probably because he is just as worried about the dire state of affairs as I am.

The most distressing part was that he was written off with callous laughter. Now that what he has been saying for months has come so true (do not hold dollars, invest overseas, oil and gold will skyrocket up), the rest of the talking heads have stopped laughing.

It is funny that one of the few financial pundits who made any sense to me turns into a major Ron Paul supporter a couple months later.

The United States once produced all the gas we needed and then some;  we were a net exporter of oil.  Those days are long gone.  Not only has our demand grown far faster than our supply, our capacity to produce is shrinking. It has progressed along a downward path for the past 20 years, longer if you exclude Alaska (Hubbert Peak).  We now must import a vast majority of our oil from countries with political, religious and social beliefs counter to our own interests. 

This danger is made worse by the fact that the rest of the world now wants their oil too.  China, India and the rest of the world is bursting at the seams with new members of the middle and upper class.  And, yes, they will want a car. And a big new home.  And new roads.  Shopping malls. Boats and everything that comes with the lifestyle.  Things that require a lot of energy.  It is without question that demand for oil at its current prices will increase tremendously in the coming years.  Hundreds of millions of new members of the upper and middle classes popping up around the developing world, their demand is going to increase too — far greater than our own.  Unless we are able to greatly increase our yearly output of oil, or develop alternative sources of energy, the price of oil will only go up.
 
The danger is exacerbated by the fact that our economy is far more leveraged than it has ever been before.  We are in more debt as individuals, corporations and a country as a whole, almost $48 trillion dollars worth (America’s Total Debt Report).  The reason oil caused little harm to our economy in the past few years is because we were riding the twin tides of an explosion of wealth created by our high tech industry and historically unprecedented demand for the US dollar caused by our victory over the USSR and status as sole super power.  Whenever we needed more money we just had to ask.  The rest of the world was more than happy to amass dollars, currency of the superstar super power, even if that meant at little to no interest.  We took it, as much as they would give, trillions and trillions of dollars worth. 
 
The world is growing tired of dollars .  The Canadian dollar was recently at its highest point since 1977. We will have far less comparative purchasing power going forward.  A grilled cheese sandwich in Amsterdam costs 6 euro, 3-4 dollars here.  Far more expensive.  And that does not even begin to take into account the fact that you will only get 70 Euro for $100 to begin with!
 
The weaking of the dollar is happening just when the world is demonstrating it has no problem gobbling up as much oil at current prices as the world can spit out.  As the rest of the world’s economies grow, their demand for oil will grow right along with it.  Rising demand will not be the only problem.

Decreasing production will be a problem too. Every year it is becoming more harder and more expensive for counties to maintain their current level of oil production (The Wolf At The Door). Like the US, countries will soon be unable to keep production at today’s levels regardless of the price. Much as we hate to admit it, countries like Iran may well be pursuing nuclear energy because it has no choice. Iran needs new sources of energy as much as we do (Sohbet Karbuz):

Iranian oil consumption has been soaring, causing a substantial drop in oil exports. According to official figures oil exports are declined to 2.3 mb/d in 2006. Third, Iran currently imports about 40% of petroleum products need.
[...]
These have been interpreted [as] Iran becoming a net oil importer in 10 to 15 years time.
[...]
Iran plans to increase oil production to 5 Mb/d by 2009 and 7 Mb/d by 2024 [are] nothing more than nonsense.

This means that if we want to compete for this oil our only solution is to bid the price up. This will do bad things for our country: periods of high oil prices cause high unemployment, high inflation and low growth. Both here and abroad. If we do not bid up the price, other countries will instead.

We can only afford to do so in one of two ways: cut down on the rest of our spending; start printing more money.  The first is deflation.  The second, inflation.  Neither is good news, but deflation would be a disaster.  An average American family of four is now over $600,000 debt to the rest of the world.  If deflation suddenly lowered our incomes, housing would plummet.  People can barely afford their $600,000 debt with the $30,000 they make presently.  It would be impossible with $20,000.
 
The only viable solution is inflation.  If our $30,000 income suddenly becomes $100,000, that $600,000 debt no longer seems like such a big deal, at least assuming that interest rate is fixed.  Unfortunately, as a side effect, this will still decrease our real spending power; it will make oil incredibly expensive.  The world has already had enough of dollars without inflation.  If the world starts to think their stash of dollars worth 100 billion euros will plummet down to 50 billion in a few years, they will be loathe to take a single extra one.  And all the newly wealthy emerging from China, India and the rest of the developing world will be happy to buy the gas instead. 
 
This will prevent us from continuing to raise interest rates.  A moderate amount of inflation will be beneficial to ease the burden citizens face paying their fixed rate loans.  But adjustable rates and imported goods will be continuously negotiated. People will quickly factor in our expected inflation into their demanded premiums.  If we respond to this with further inflation, they will start factoring antipcated inflation growth as well.  That disasterous feedback loop will create hyperinflation, a ruinous venture if ever there was one. The end of that road is one with you hauling wheelbarrows full of cash to the store to buy bread, or trading it for a stable currency like the Brazillian Real: Today “1 Real is equal to 2,750,000,000,000,000,000 Reis,” the Brazilian currency in 1700.

 
There is but one end result: trim down our appetite and pay ever more for everything we import, especially gas.  Devote as much resources as we possibly can to finding an immediate energy replacement for oil. This is a national emergency, but no one is paying attention.
 
For this reason, I am fully confident that inflation will come along, and once it does, that $4/gallon gas you think is expensive today will suddenly seem like a steal at $10.
 
The best way to protect yourself:

• Invest in foreign currency.
• Invest in oil.
• Invest in valuable commodities like gold.
• Invest in alternative energy.
• Demand all interest rates paid to you to be short term and/or variable.
• And most importantly, ONLY assume fixed interest rate debts!

Yahoo reports that for the low cost of $4,000 a year (excluding maintenance), you can outfit a home with solar cells, saving your self from paying the oil-burning utility companies $1,500 a year. Of course, that $4,000 a year figure would be significantly higher if the solar cells were not manufactured using oil-subsidized energy.

Gas is now at $1.99 per gallon in Knoxville. I think this is a blip. The longterm outlook for oil prices looks bad. We need to divert all the money we are presently wasting on not making Iraq any better and pour it into developing alternative sources of energy — China has the right idea.

Even if researching these technologies are expensive; even if these new energy technologies cost substantially more per net watt gained than gasoline, America must find a way to supply its own energy needs. Failing to do so will make us beholden to the whims of the theocratic, despotic oil tyrants like Ahmadinejad and Chavez who control the resources we require. Wealth will flow — as it always has — from the nations needing resources to the ones supplying them. This is happening right now.

Even with a weakening dollar discouraging investment, oil exporters now control three to five times the amount of short-term US debt than they did in 2002. China owns nearly half a trillion dollars of long-term US securities, up from 100 billion in 2000. Many emerging countries such as Ireland, South Korea and Mexico; oil exporters like Malaysia, the Netherlands and the Middle East; and developed countries like Japan and Luxemburg have far more excess capital to lend to the United States.

No matter what we do, wealth will not stay centralized in American coffers like we saw for most of the 20th century; the future will see wealth dispersed about the globe. This need not be a bad thing. This can benefit emerging economies like China and Brazil independently of its expense to the United States. But keeping our economy dependant on increasingly expensive, scarce and valuable oil — diverting greater and greater shares of our GDP into autocratic, anti-American regimes — is a recipe for disaster; the surest way emerging economies will siphon off a sizable amount of American wealth.