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We all know that house prices in the United States and pretty much
everywhere else in the world have been falling for a few years, but less well
recognized is that the extent of the decline is masked by inflation. In other
words, if the dollar was not being inflated – an insidious practice
that causes the dollar to lose purchasing power – the decline in house
prices would be even greater. And what is true for the dollar, is also true
for other national currencies because all are being inflated to some extent.
Only their rate of inflation differs.
What the world’s monetary system is missing is a reliable
numéraire. National currencies do not meet this need. There must be
some standard against which all goods and services can be measured. Only with
this unalterable standard can the price of goods and services be viewed over
time to make accurate comparisons, for example, to see whether something
overpriced a few years ago – like houses – has become undervalued
today.
The good news is that this reliable numéraire exists – it
is called gold. The price of every good and service can be expressed
in gold as well as any national currency. In fact, it is essential to measure
things with gold in order to get a true perspective on prices.
For example, I often look at the price of crude oil in terms of
gold
as well as financial assets, such as the gold price of the stock market. We can also measure
house prices the same way, and in this regard, Chart of the Day has provided the
following useful chart. It measures the US median single-family home price in
terms of gold. In their words: “It currently takes 153 ounces of gold
to buy the median single-family home. This is considerably less that the 601
ounces it took back in 2001. When priced in gold, the median single-family
home is down 75% from its 2001 peak and remains well within the confines of
its five-year accelerated downtrend.”
Thus, the above chart shows how much less expensive house prices have truly
become if measured by world’s numéraire, but Chart of the Day
did not carry its analysis to its logical conclusion.
Specifically, gold’s bull market is not yet finished, at least
based on the historical experience recorded in this chart. Regardless what
happens to the dollar price of houses, their gold price is likely to fall
further. In other words, housing prices seem destined to become cheaper, or
more to the point, the dollar price of gold looks destined to rise further.
In January 1980, when gold reached its peak in that previous bull
market, the median single-family home cost 86 ounces. Although I am not aware
of the historical record for housing prices during the Great Depression, it
is likely that at its depth, the median single-family home probably cost less
than 86 ounces, given the severity of that economic downturn and gold’s
heightened purchasing power because of the financial crisis back then caused
by widespread bank failures.
Thus, when the median single-family home price falls to less than 100
ounces from today’s 153 ounces, home prices are starting to become good
value. And at some point when the median single-family home price is at 90
ounces or 80 ounces and perhaps even less, a house can be purchased at
exceptionally good value. At that moment, it will be a good time to spend
some gold now being accumulated – i.e., being saved – to buy a
house. This observation leads to a more important conclusion, given that gold
is money.
Saving money is of course always a good thing, whether to build a
nest-egg for a rainy day, funds for your retirement, or to make some future
purchase. It is a particularly good thing to save gold while it is
undervalued and the item you wish to purchase is overvalued, which brings me
back to the importance of gold as the world’s numéraire.
To truly understand the cost of any good or service, use gold to
measure prices. Use gold to evaluate whether the good or service you wish to
purchase is good value. After all, gold is money.
James Turk
Free Gold Money
Report
Article originally published by the Free
Gold Money Report.
James Turk is the
founder of the Free Gold Money Report and of GoldMoney.com. He is also the
co-author of The Coming Collapse of the Dollar (www.dollarcollapse.com).. Copyright © by James
Turk. All rights reserved.
Copyright © 2008. All rights reserved.
Edited by James Turk
This material is prepared for general circulation and may not have
regard to the particular circumstances or needs of any specific person who
reads it. The information contained in this report has been compiled from
sources believed to be reliable, but no representations or warranty, express
or implied, is made as to its accuracy, completeness or correctness. All
opinions and estimates contained in this report reflect the writer's
judgement as of the date of this report, are subject to change without notice
and are provided in good faith but without legal responsibility.
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