The changing face of deflation

As noted previously, the shared global economic system has been dominated by deflation for the past eleven years. Evidence for this can be seen in the chart of US dollar index vs gold price since 2008 (below).

Since 2008, the US dollar has risen about 35%, whereas the gold price (in US dollars) has risen over 50%. At the current level, where goldxUSDX approaches the 1400 isoquant, non-US gold mining companies are getting more for their gold than they were in August 2011, when the gold price was $1848/oz. This speaks of deflation. But if you look at shorter timescales, you mostly see the expected inverse relationship between gold and the dollar.

Do you hear of deflation? Most people worry about inflation--it's the banks that worry about deflation. And it's not hard to see why. In a deflation, people seek to hold real money--which for most people nowadays means cash. But the graph shows that two things are viewed--nearly equally--as cash: gold and the US dollar. They have been rising for ten years because of an undercurrent of urgent purchases. Banks don't like people removing cash from the system because it impedes their ability to lend. Removing cash from the banking system and hoarding it (or using it to buy gold) short circuits the "wealth-creating engine" of the past few decades, which has been responsible for the growing wealth inequality since the 1980s.

But if we look at the relationship between the US dollar index and the gold price over the last year, we see a change--perhaps an important one--in the style of deflation we are experiencing.

In the past year, gold has risen about 20% in price (in US dollars), whereas the US dollar has only increased about 2% over the same timeframe. My interpretation is that this suggests a shift in deflation protection from purchasing a mix of gold and US dollars to just gold. After all, President Trump is signalling he wants to drive the US dollar down in price, and we all know that governments have many tools they can use to destroy their own currency!

The chickens come home to roost

Back when I first started going to Africa, I was annoyed to discover that the practice of charging foreigners (the only time I have ever been lumped together with the white men) higher prices (often much higher prices) for pretty much everything. Initially I tried to take this in good humour and the various assistants that I had travelling with me from time to time were inconsistent in the efforts they expended to ensure that I paid the same price for things as any African.

One stands out in particular--Kofi the Lion, drunken con artist though he was, fought hard on my behalf. I remember once being held up taking a boat across a river because the ferryman wanted to charge me double the trivial price that everyone else had to pay. Now this river was so narrow you could almost run and jump across it, and it probably took about 10 s to cross it (plus another minute or so getting into the docking space). Kofi fought with him, holding up the boat for at least 20 minutes until finally winning his point.

Another time when I was buying some carvings from a local artist, he spent a good bit of time in a lengthy argument over pricing with the artist. And when an agreement was reached, he suddenly demanded a commission from the artist. He pointed out that he had brought me to this man's store, but we could have gone to any other. Reluctantly, the artist agreed. As soon as we left the store, Kofi gave me his commission. I gathered that he was still unhappy with the price, but did his best to reduce my costs at every turn. And that is how shopping is in Ghana--you need to be prepared to fight for every advantage.

A rare photo of Kofi Jatah, at left.

With time, our staffing situation improved, and a consistent group of characters coalesced around us and our nascent project. And my thinking on the subject of higher prices for foreigners changed as well. Instead of having our local staff resist this policy as an act of altruism, I realized that it was in their interest as well.

They used to complain that if they helped me too much, they were criticized by the various shopkeepers I understand the impulse of sticking together and helping your fellow Ghanaians prosper by taking advantage of foreigners. But I pointed out that if they allow us to pay a higher price, that is the price that they and all other Ghanaians will soon pay as well.

The reason was that more and more foreigners were coming to Ghana because of varied business opportunities. Vendors will soon realize they could sell all of their product to foreigners. If the foreigners are paying a higher price than the locals, why sell anything to the locals? So my mantra became "whatever you allow to happen to others will eventually happen to you."

Tailings and troubles

Canadian mining companies do not have the best reputation overseas, especially in impoverished areas of the world (Latin America in particular). Human rights violations have resulted from conflict between mining companies and local inhabitants throughout Latin America over potential environmental impacts, and the economic problem of wealth extraction from impoverished areas without economic compensation.

These problems are poorly reported in Canada, so Canadians may have some excuse for largely being unaware of these issues. But one issue that is harder to claim ignorance about is the multiple examples of tailings dam failures. Tailings pond failures in Canada have a long history, and Canadian companies have been implicated in a few overseas collapses as well. So it isn't unlikely to find the local population very interested in the parameters of a tailings pond that will soon appear in their locale.

And here we come to the nub of it. Canada has allowed its mining companies to abuse protesters at overseas mining (and potential mining sites) for generations. So it is inevitable that such behaviour would eventually come home, as may have begun recently in Nova Scotia. Use of local/national police forces against such protesters - check. Government deciding not to investigate use of force - check.