Jul 12, 2012 / 5:00 am
I recently stumbled across an old picture that I had taken during the 1988 Winter Olympics in Calgary. In the background of this picture is a Shell gas station with the price of gas posted at $0.33/L. (Of course the economist in me got to thinking.) If we look back to the national average single person income of 1988 it was $33,800*. (*Statistics Canada) Today, using the same income category, that number is $39,900*. As I look out the window of my office, the present price of gas is $1.33/L. So in nominal terms, the price of gasoline at the pump has risen 303% in 24 years, while wages have risen a meager 18%. So with respect to purchasing power, the price of gasoline has risen 285%. This means, when it comes to purchasing gasoline, we are 285% poorer than we were back in 1988.
Well that’s not very uplifting. Let’s take a look at housing prices - that might be a bit cheerier. In 1988 the national average price of a single family average sized home was $100,000*. Today that same home costs $375,000*. In nominal terms, the cost of housing has risen 275%. In real terms this is 257%. Thus, when purchasing homes in real terms, we are 257% worse off than we were in 1988.
Okay, let’s look at the price of mailing a letter in 1988: $0.37. Today it costs us $.61 to mail a letter. That’s a real increase of 64%. I could go on and on here; suffice it to say that on a cumulative basis since 1988 the Consumer Price Index (a basket of items purchased by the typical Canadian household) has increased by 59% nominally, and 41% in real terms. Keep in mind, the Consumer Price Index does not include food and energy prices because as Canadians, we don’t eat, drive cars, heat our homes…. (this is simply a ploy by the federal government to hide total price inflation).
So what? In the 1988 Olympics Canada did not go home with a single gold medal. In the 2010 Olympic Games we commandeered 14 gold medals so we must be better off… right? I wish that were true. Okay, let’s say your employer comes to you tomorrow and tells you that they will be slashing your salary by 41% (of course this number would be closer to 60% if you include food and energy). That is the point! There is absolutely no difference between slashing your salary, or having real prices rise by 41%. Remember what I have said in previous articles, purchasing power is all that matters and we have lost at least half of our purchasing power in the past 24 years.
So what has retained its purchasing power? In 1988 an ounce of gold on average was worth $400/oz. So in 1988 you could have bought 1,212 L of gasoline. Today gold is trading around $1,630/oz., buying you 1,226 L of gasoline. So gas prices have actually gone down when purchased in gold. In 1988 it would take 250 ounces of gold to buy a medium sized single family home in Canada. Today it would only take 229 ounces of gold to purchase that same house. Over the past 24 years the cumulative Consumer Price Index has risen 59%, while gold has outpaced this by 308%. Now that’s real money! That’s growing your wealth! That’s purchasing power! Mark my words, as sure as there will be another ridiculous G10 meeting in the next 30 days, gold will play a larger role in personal and sovereign finances and ultimately rise to levels never seen before.
The opinions and comments of the preceding article are strictly those of the author and are not necessarily shared by Western Union Business Solutions.
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- You're poorer than you think Feb 22
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- Debt slave Part 2: Mortgages Dec 14
- Debt slave: Part 1 Nov 2
- Got gold? Oct 5
- End game for Europe Sep 21
- This will end badly Aug 23
- Things that make you go...hmmm? Jul 12
- Currency wars Jun 14
- Let them eat cake May 31
- No global economic recovery May 17
- Austerity comes to Canada Apr 5
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