High end art prices skyrocketing
If ever there was an apt metaphor for our times, it was the sale of Andy Warhol's "200 One Dollar Bills" at Sotheby's on Nov 11th. The silkscreen, which is a black and white image of 200 U.S. one dollar bills, went for $43.7 million (including commissions). It had previously been purchased for $385,000 in 1986, so this sale represented an about a 100 times increase in price in only 23 years.
High-end art is a place where inflation shows up first. Only when the big price increases start filtering down to lesser works though is it an indication that inflation is getting really out of control. In hyperinflations, even tertiary works experience big price increases. Art, collectibles, and antiques were favorite investment areas in the U.S. during the high-inflation 1970s.
At the rate the U.S. government is printing money and pumping liquidity into the financial system, it might take $43 million one day to buy what $200 did when Warhol created his artwork.
The Chinese have been complaining loudly recently about excessive U.S. spending and its impact on the dollar (they are estimated to hold about $1 trillion in dollar denominated assets in their reserves). Reluctance on their part to continue buying U.S. debt would cause treasury interest rates to rise significantly. Rates on 10-year and 30-year treasuries were already going up at the end of 2009. The Chinese, by selling even a small part of their dollar hoard would damage the U.S. currency, which is already in a strong downward long-term trend. A falling currency is the very definition of inflation (contrary to what most economists claim).
While government statistics are subject to manipulation, markets ultimately speak the truth. The price of gold, the ultimate measure of inflation, hit all-time highs above $1200 in early December. Just like sky-high art prices and a falling dollar, gold is making a very clear case that inflation is coming. And based on their price action, it's going to be a lot of inflation.
Our advice to Secretary of the Treasury Tim Geithner, on his next trip to China, is not to attempt to offer the Chinese Government this Disney animation cell artwork of Scrooge McDuck, such as this piece entitled "Money in the Bank." The Chinese might counter by pointing out to Mr. Geithner that Scrooge is depicted with money that consists mostly of gold coins. And while the rest of Scrooge's fortune is depicted as piles of dollars, most Scrooge artwork dates from before 1971, when the US was on the gold standard.
Daryl Montgomery is a former engineering professor and the Organizer of the New York Investing Meetup , the largest investment meetup group worldwide.
Jack Kemp is a contributor to American Thinker.