How’s the Fed done in maintaining the purchasing power of the US$?
Fed Pres Fisher is also speaking on the economy today and the Federal Reserve and one comment specifically stands out. He said that a goal of the Fed is to maintain the purchasing power of the US dollar. To quantify the success of this or lack thereof, one should look at the rate of increase in the CPI to measure how much a like basket of goods cost over different periods of time. Using Bloomberg data going back to 1920 (as far back as it goes and the Federal Reserve was established in 1913), the purchasing power of the US$ has fallen 91% since 1920. Since 1971 when the US went off the gold standard, the US$ has lost 81% of its value. Greenspan took office in 1987 and the US$ has since lost 47% of its purchasing power. Bernanke followed Greenspan in Feb ‘06 and since then the US$ has lost 8.3% of its value. This report card of the Fed’s ability to achieve a key goal speaks for itself.
November 16th, 2009 at 6:11 pm
Yeah, they suck!! Perhaps you should check out this site…
http://mwhodges.home.att.net/inflation.htm
November 16th, 2009 at 6:14 pm
But who prey tell has ‘pocketed’ the most of the excess dollars? This is the real question and the answer of course is the elites who control the legislative branch of the US government.
November 16th, 2009 at 11:24 pm
I enjoyed this read very much. One thing I would point out is that the way they calculate CPI uses substitution so that basket isn’t always matching steak to steak it could be steak in 1989 and beanie weenies in 2009.
John Williams over at Shadow Stats keeps his statistics with the baskets of identical goods.
Like night and day from what the BLS feeds us.
November 17th, 2009 at 6:45 am
Peter,
nice article, but BR tells us: “We live in a Free Market”..How does one have a ‘Free Market’ in an Economy with a monopolized Currency? let alone, one issued by a Private Bank?
What gives?
also, davossherman, re: CPI, good point. Buy TIPS ! Right? lol..
Moss,
you bet, it’s, exactly, like that.
November 17th, 2009 at 5:51 pm
The Fed has a target inflation of about 1.5% -2%. With an 81% loss in dollar value over 32 years, something costing $1 in 1971 would cost $5.25 today. That’s more than 5% average annual inflation.
Why has the Fed missed its target? Three main reasons:
1. Inflation is impossible to measure over the long term. That “basket of identical goods” davossherman suggests is impossible. What goods from 1971 are identical to those in 2009? Virtually none. Even hamburgers are different. All machinery, electronic products, textiles and every sort of equipment you can think of have changed — mostly improved.
2. The Fed believes a weak dollar stimulates exports.
3. The Fed believes raising interest rates to fight inflation, is bad for business.
Number 2 may be true. Number 3 is false. There is no relationship between interest rates and GDP growth. Check the graph at http://rodgermmitchell.wordpress.com/2009/09/09/low-interest-rates-do-not-help-the-economy/
Mr. Hoffer, your question, “How does one have a ‘Free Market’ in an Economy with a monopolized Currency?” is interesting. What do you suggest?
Rodger Malcolm Mitchell
November 17th, 2009 at 6:35 pm
My suggestion is Social Credit. I did a deep study and read all CH Douglas’s books and it will work. It would already be in place in Canada if the Elites had not frustrated the government of Alberta in 1935. This will only happen if there is a grass-rtoots movement to spread the word and people who are not too lazy to learn a better way. We’re at the junction where Franklin’s words are about to be tested, “A people who will not defend their liberty are a people destined to loose it.” Here’s the big problem though. The system is broken but how do you fix it? Who do you vote for to get the job done Now you know the answer. Check out Wikipedia and find out how the people of Alberta did it in 1935. Watch the movie “Gandhi” and rediscover the power of non-violent protest. There is only 1 bankster/corporate magnate for every 100,000 of us. We just need to know what we want. All most of us know is what we don’t want.
November 17th, 2009 at 10:12 pm
Under the Fed, the purchasing power of the dollar fell 91% and its performance is getting exponentially worse in recent decades…
Funny that you posted this, Mr. Ritholtz. The other day my comment against Sarbannes-Oxley left you all bent out of shape. I hope today’s post has made you rethink your opinion.
Maybe someday you will post an article titled “How’s Sarbannes-Oxley done in protecting investors and improving the accuracy and reliability of corporate America?”
December 9th, 2009 at 9:25 pm
Basically, we need regulators to regulate the regulators. We should dissolve our Securities and Exchange Commission, Go back 15 years and prosecute all the Commissioners and Enforcement Chiefs since then. That should send a message. It’s getting harder and harder to stay optimistic about our financial future….