Charles Kadlec: The rising price of the falling dollar

Section:

By Charles Kadlec
Forbes.com
Tuesday, March 20, 2012

http://www.forbes.com/sites/charleskadlec/2012/03/19/the-rising-price-of...

Do you know why oil and prices are moving sharply higher?

Some blame the oil companies, charging they are manipulating prices. Others cite U.S. sanctions on Iran and the threat of a military encounter that would disrupt the flow of oil from the Middle East.

Speculators too are blamed for ostensibly bidding up the price of oil. In the political arena, President Obama is taking credit for increased domestic oil production even as his critics point out the slow pace of drilling permits issued by his administration soon will hamper additional increases in the U.S. oil production.

Yet the basic reason for higher energy prices is being overlooked, even though it is right before our eyes: Oil prices are up because the value of the dollar is down.

Our common sense hides this source of higher prices because we view the dollar as fixed, and prices as moving. News reports explain the sharp rise in consumer prices in February were caused by higher energy and food prices, implying that higher prices cause inflation. Of course, higher prices do not cause inflation. Higher prices are inflation.

... Dispatch continues below ...



ADVERTISEMENT

Prophecy Platinum (TSXV: NKL) and Ursa Major Minerals
Sign Combination Agreement

Company Press Release
Friday, March 2, 2012

VANCOUVER, British Columbia, Canada -- Prophecy Platinum Corp. (TSX-V: NKL, OTC-QX: PNIKF, Frankfurt: P94P) and Ursa Major Minerals Inc. have signed a binding letter of agreement for a business combination through a proposed all-share transaction. In doing so Prophecy and Ursa have acted at arm's length and the transaction has been negotiated at arm's length.

Prophecy will issue one common share in exchange for every 25 outstanding common shares of Ursa. Ursa options and warrants will be exchanged for options and warrants of Prophecy on an agreed schedule.

Prophecy's offer represents a value of about $0.15 per each common share of Ursa based on Prophecy's share price of $3.70 as at March 1, representing a premium of 130 percent to Ursa's March 1 closing price of $0.065.

Prophecy is to subscribe for $1 million common shares of Ursa by way of private placement financing at $0.06 per share, subject to regulatory approval. Upon placement completion, John Lee and Greg Hall, current Prophecy directors, will be appointed to Ursa's board.

Prophecy thus will become a mid-tier resource company with a robust and
diversified pipeline of platinum nickel projects, including:

-- The fully permitted open-pit Shakespeare PGM-Ni-Cu mine close to Sudbury, Ontario, infrastructure with near-term production capabilities.

-- The flagship Wellgreen (Yukon) PGM-Ni-Cu project with more than 10 million ounces of Pt-Pd-Au inferred resource. Drilling is under way and a preliminary economic assessment study is pending.

-- Manitoba's Lynn Lake Ni-Cu project with more than 262 million pounds Ni and 138 million pounds Cu measured and indicated.

For the complete announcement, please visit Prophecy Platinum's Internet site here:

http://www.prophecyplat.com/news_2012_mar02_prophecy_platinum_ursa_major...



The cost of this deception goes well beyond the vilification of the oil industry and free markets. The real price of the on-going debauchery of the dollar is measured by the loss of our prosperity and the debasement of our liberty.

Neither the dollar, nor the price of individual items are fixed. Changes in the relative prices of goods and services occur because of technological change or shifts in supply or demand. The price of computers and televisions fall relative to the price of, well, just about everything. On the other hand, the freeze earlier this winter in Florida reduced the supply of oranges, leading to an increase in the price of orange juice. But, the value of the dollar also changes, usually in ways that are imperceptible over short periods of time. As a consequence, when the dollar price of gasoline rises 6% in a month, as it did in February, it appears that the price of gasoline is up, rather than the value of the dollar is down.

To see more clearly how the price of the dollar has changed, it helps to view price changes over a 10 year period. Since 2002, the price of a barrel of oil has increased four-fold, to $107 last Friday from $26 in 2002. To suggest that oil companies had enough power to impose such a price increase, or that speculators are responsible for a quadrupling of the price of oil is, on its face, preposterous. Instead, the price of oil and gasoline are up because the Federal Reserve has driven the value of the dollar down.

For example, if the dollar since 2002 had been as good as the:

-- Chinese yuan, the price of oil today would be $82 and a gallon of regular gas would cost about $3.10;

-- Euro, the price of oil today would be $77 and regular gas would cost about $2.90;

-- Japanese yen, the price of oil today would be $71 and regular gas would cost about $2.75;

-- Swiss Franc, the price of oil today would be $63 and regular gas would cost about $2.50.

Even these results miss the full decline in the dollar's value because the value of all of these currencies, too, have fallen over the past decade. If the dollar had been as good as gold, the price of oil today would be about $20 a barrel, and the price of gasoline would be down near $1 a gallon.

That's right -- the lower prices produced by the increase in oil and natural gas production have been disguised by the fall in the value of the dollar.

However, we do not see how the hundreds of billions of dollars of shareholder money put at risk to find and develop those vast new supplies of oil and natural gas have put downward pressure on energy pricers. Instead, when we experience higher gasoline prices, we intuitively know the nominal value of the oil in the ground developed with 2002 dollars has gone up right along with the price of gasoline, producing unbelievable profits seemingly at our expense. Bu, the paper dollar system, not the oil companies or, by implication, free markets, is to blame for the resulting windfall.

The ongoing debauchery of the dollar also erodes our prosperity and our security. As detailed in the booklet I co-authored with fellow Forbes.com columnist Ralph Benko, since the final link between the dollar and gold was severed in 1971, the paper dollar system has produced slower growth, higher average unemployment, deeper recessions, and more frequent financial crises. Had U.S. growth continued at its pre-1971 post World War II average, the economy today would be 50% larger, and incomes, on average, 50% higher.

These findings were corroborated by a study by the Bank of England, which found that when compared to the post-World War II gold standard under the Bretton Woods system, world economic growth was a full percentage point slower, inflation 1.5% higher, downturns more frequent, and banking crises soared to an average of 2.6 per year.

The greatest price of the deception created by the falling dollar is the steady erosion of our liberty. The illusion of higher oil prices has been exploited by the governing class to increase the size and scope of government. Mandates proliferate, from the imposition of fuel economy standards to the wasting of billions of dollars in subsidies on ethanol, electric vehicles, money-losing green energy projects, and windmills that slaughter 250,000 birds each year.

The power to print money at will also has corrupted our system of government. First, by financing growing government deficits with newly created money, it has removed the ability of market participants to check the growth of government. Even worse, the combination since December 2008 of zero percent interest rates and an 8% increase in the price level represents an unaccounted for partial default on the federal government's then $10 trillion in debt. In effect, the government has stolen $800 billion from the holders of its debt. On today’s $15 trillion federal debt, the theft, and injustice, is even greater.

This lack of accountability has undermined the legitimacy of government -- and also legitimate commerce. An unstable value of the dollar has contributed to the bubbles and more frequent and severe financial crises of the past 40 years. It has led to the proliferation of all sorts of financial instruments and derivatives that advantage Wall Street over Main Street. And, the Federal Reserve's zero interest rate policy continues to rip off savers by transferring hundreds of billions of dollars in spending power to those who borrow.

Far more is at stake than high gasoline prices. Restoring order to oil markets, stability to gasoline prices, and legitimacy to government and markets requires a fundamental reform of our paper dollar monetary system. The latest oil shock, the current financial crisis, and the experience of the last 60 years demonstrate that replacing the paper dollar with a dollar as good as gold is essential if government is to fulfill is fundamental purpose of securing for the people their unalienable rights to life, liberty, property and the pursuit of happiness.

* * *

Support GATA by purchasing DVDs of our London conference in August 2011 or our Dawson City conference in August 2006:

http://www.goldrush21.com/order.html

Or by purchasing a colorful GATA T-shirt:

http://gata.org/tshirts

Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009:

http://gata.org/node/wallstreetjournal

Help keep GATA going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

http://www.gata.org

To contribute to GATA, please visit:

http://www.gata.org/node/16



ADVERTISEMENT

Sona Discovers Potential High-Grade Gold Mineralization
at Blackdome in British Columbia -- 13.6g over 1.5 Meters

From a Company Press Release
November 22, 2011

VANCOUVER, British Columbia -- With its latest surface diamond drilling program at its 100-percent-owned, formerly producing Blackdome gold mine in southern British Columbia, Sona Resources Corp. has discovered a potentially high-grade gold-mineralized area, with one hole intersecting 13.6 grams of gold in 1.5 meters of core drilling.

"We intersected a promising new mineralized zone, and we feel optimistic about the assay results," says Sona's president and CEO, John P. Thompson. "We have undertaken an aggressive exploration program that has tested a number of target zones. Our discovery of this new gold-bearing structure is significant, and it represents a positive development for the company."

Sona aims to bring its permitted Blackdome mill back into production over the next year and a half, at a rate of 200 tonnes per day, with feed from the formerly producing Blackdome mine and the nearby Elizabeth gold deposit property. A positive preliminary economic assessment by Micon International Ltd., based on a gold price of $950 per ounce over eight years, has estimated a cash cost of $208 per tonne milled, or $686 per gold ounce recovered.

For the company's complete press release, please visit:

http://www.sonaresources.com/_resources/news/SONA_NR18_2011-opt.pdf