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World better when kids get credit for cone?

In 1932, my grandfather bought a house for $1,050. He paid for it essentially in cash, though my 86-year-old uncle recalls at least one other payment of $50 that somehow was needed to complete the transaction. The reason the two payments of $1,000 and $50 were made that way has long since left his memory. 

That year was the last full year the United States was on the gold standard. Put in terms of U.S. gold coins, the price was 52 $20 gold pieces and a $10.

My grandfather was fortunate. He still had a job when about one-quarter of the workforce was unemployed and shanty towns called Hoovervilles had sprung up across America.

He wasn’t rich. Cash payments were just the way things were done then. Despite what you see in the movie, It’s a Wonderful Life, getting a mortgage was a very difficult thing and people basically just had to save up the purchase price of a house. This is what he did.

When my grandfather bought the house he was 38 years old and had five children. The oldest was already 12.

At the peak of the recent real estate boom in St. Paul, Minn., my uncle says the house sold for $155,000. Wow.

That’s 147.62 times the 1932 purchase price, and the house is 77 years older.

For the buyer who paid that high price, it must have been a stretch because there appeared to be a foreclosure notice on the door when I passed the place Labor Day weekend. The house did already look like the owner was in distress.

It happens to be much easier than usual for me to use gold as a yardstick, because it crossed the $1,000 mark the day this was written, the first trading day after Labor Day. That makes calculations much easier, because I can use at least one round number.

The price of the house has gone from 50.79 ounces of gold to 155 at the peak, if we use today’s gold price. The gold $20s of the time were not quite one troy ounce. They contained 0.96750 troy ounces each. That is how the 52.5 coins add up to just 50.79 ounces of gold.

Since gold is called an inflation hedge that doesn’t lose its purchasing power, it raises the question is gold just one-third the price it should be today, or did my grandfather’s house rise in value to three times what it should have? The foreclosure notice might indicate the latter.

The United States formally abandoned gold in 1933 and formally devalued in 1934 when the official price was fixed at $35 a troy ounce as compared to the $20.67 that had been the fixed price before. Formal devaluations took gold to $38 and $42.22 as the official prices in 1971 and 1973, respectively. The latter is still the official price at which America’s 260 million ounce gold reserve is valued.

Even though my grandfather did not pay for the house with gold coins, he would have recognized them as money if he saw them. His lack of credit kept him from owning a home until middle age.

Also the same weekend I was standing in line at a Dairy Queen. A high school kid ahead of me paid with a credit card. That pretty well sums up the difference in attitudes toward credit between 1932 and 2009. Could that be why gold is $1,000 an ounce?

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