One of the favorite tropes of the “End the Fed” crowd is the “falling purchasing power of the U.S. dollar.” Google that phrase, and you will be rewarded with 91,100,000 results. (drop the “U.S.” and it doubles to 187,000,000 results).

The problem is, nearly all of these arguments are wrong.

As Matt Busigin of Macrofugue points out (echoed by Joe Wiesenthal of Business Insider), measuring the buying power of cash by functionally burying it in Mason Jars in the backyard is a misleading and inappropriate metric.

You would never measure the performance of dividends stocks without factoring dividend payouts; you certainly would not measure returns from bonds by ignoring their coupons. So why pray tell does anyone try to measure purchasing power by ignoring the inherent power of the dollar to generate guaranteed interest rate returns?

Let is ignore for the moment the compounding benefits of putting those dollars to work in stocks, bonds or real estate. Let us make the most conservative, liquid, riskless investment possible for cash: 3 month T Bills.

As the chart above shows, if you were dumb enough to bury those Mason jars, you would have lost purchasing power. But unless you played football without a helmet in the 1950s and 60s, then you surely would never have made such a foolish move with your cash. And your purchasing power would be pretty even with inflation.

Busigin points out that with “so little of household net worth in cash, the current dollar value is irrelevant, anyway.” What matters more is the purchasing power of an hour of labor to acquire a need good — food, shelter, clothing, iPhones. How many hours of labor required to make these purchases is much more important than the currency used as an intermediary between the laborer/wage earner and the consumer.

The St Louis Fed has even whipped up a graph to track the purchasing power of your hourly wages. That is actually good news for consumers, as Matt points out, because “real hourly wage level is at its highest value in two decades.”

In actuality, the current Fed policy effectively punishes rentiers — not consumers. That, alas, is a column that will have to await another day . . .


check out the 150 plus comments here


Category: Currency, Data Analysis, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

16 Responses to “Has the Dollar Really Lost 97% of Its Value? (No)”

  1. RW says:


    The vast majority of “dollar debasement” arguments I’ve ever seen were either grounded in conspiracy theory or a fundamental misunderstanding of money and, in most cases, both.

    But more strikingly perhaps, it’s really difficult to find a cogent argument for a “strong dollar” in the first place. Mostly it’s hand waving or moralizing (or both) with an implied or expressed fear that “things will simply get out of hand” unless the macroeconomic reins are held in a clenched fist and consistently pulled back hard; not a good way to run a country …or ride a horse if it comes to that.

    • Angryman1 says:

      Then it is time for “conspiracy theories” about the conspiracy. Why lie like they do? Who is financing their propaganda?

      The “Fed” has little play with dollar strength anyway. Maybe it is time to tell what the “Fed” really is. It would probably surprise people where the Fed has power and where it doesn’t have power.

  2. BennyProfane says:

    It’s a bizarre argument, especially since the period of this “debasement” has been the most comfortable and luxurious for the common man ever. Hell, go back in a time machine and snatch some royals from the seventeenth century, bring them back (tell them to leave their gold by the throne, please), and just walk them through the aisles of a nice suburban supermarket (OK, Whole Foods, if you wish). Then tell them our currency has a problem, it’s lost almost all of it’s value in the past century. They would probably want to know who’s currency is fine, after they pick their jaws up from the floor, and then demand to go to see that country’s vast wealth.

  3. whoa, you mean conflation leads to erroneous conclusions?

    con·flate (kn-flt)
    tr.v. con·flat·ed, con·flat·ing, con·flates
    1. To bring together; meld or fuse: “The problems [with the biopic] include . . . dates moved around, lovers deleted, many characters conflated into one” (Ty Burr).
    2. To combine (two variant texts, for example) into one whole.
    [Latin cnflre, cnflt- : com-, com- + flre, to blow; see bhl- in Indo-European roots.]
    con·flation n.
    con•fla•tion (kənˈfleɪ ʃən)

    1. the process or result of fusing items into one entity; fusion; amalgamation.
    2. a text formed by combining two variant texts.
    [1400–50; late Middle English < Late Latin]
    conflation [kənˈfleɪʃən] N → combinación f
    n → Zusammenfassung f

    the Dollar was, once, a (specific) Thing, now?, tis', but, a Notion..

  4. HydMan says:

    The problem with the argument is that once you convert your dollars to T-bills, they aren’t dollars anymore. Now you own debt.
    There is also a problem with this chart. Our currency has changed over the years. In the middle of the timeframe shown, Nixon closed the international gold window, making the dollar a fiat currency. Our dollars are worth $1 because the Federal Reserve says they are. They have no intrinsic value. To be consistent, the chart should start in 1971.
    What I think the chart shows from 1971 forward is that the dollar is not a store of wealth. For that, you need scarcity. It takes more dollars to buy stuff because the number of dollars in existence has gone up. Inflation is an increase in the currency supply. Higher prices (and wages) are just a result of this. So yes, storing your dollars in a mason jar in your backyard is a bad idea. Hanging on to dollars at all is a bad idea.

    • You own risk free, short term liquid. Not bonds, not stocks, not real estate.

      The entire point of this exercise is one ignores the “rent” — i.e. interest payments — only if you are foolish

      • With all due respect, the customers of the banks in Cyprus would beg to differ with “risk free” as applied to bank deposits… ditto for U.S. banks 1929-1932. Cyprus is a significant precedent, at least for the “Euro” version of this argument. Meanwhile, what about the customers of “money-market” funds that broke the buck in 2008? Or the customers who had “segregated” cash at MF Global?

        Within the U.S., bank deposits are a minuscule fraction of “cash” in the financial markets… The vast majority is really short-term bonds wrapped up in “money-market” funds. Thus, the vast majority of “cash” is not FDIC guaranteed and, thanks to regulatory changes which now allow money-market funds to break the buck in a crisis, is no longer “risk free”. As several fund managers (Fidelity & Vanguard among them) realized just a month ago when they were obligated by fiduciary duty to shed exposure to short-term U.S. Treasuries whose coupons might not have been paid on time.

        The point of the exercise is that one ignores “risk” only if one is foolish. Just because the government printed up more credit and allowed the banks to fake their accounting to hide the losses from 2008, does not make the losses go away. Absent the taxpayer-robbing bailouts, a lot of cash was in fact trash. Will the government be able to deliver the same outcome again in the next crisis? That’s a legitimate question.


        BR: WTF does Cyprus banks have to do with risk free US notes held here? YOU ARE FLAILING

    • DrSandman says:

      You’re allowing BR to confuse you and compare apples and oranges. The real question is how many goods and services you could purchase in 1913 with $1 — say hours of labor from an (Irish) immigrant — vs. how many you could purchase in 2013 with the same $1. That’s what money is!

      How many dollars does it take to pay some kid to mow your yard today vs. how much did Henry Ford pay his factory workers. (Ans: $0.50 an hour via: ).

      Any other discussion of what a dollar is worth is sophistry and lawyerly obfuscation.

  5. odnalro zeraus says:

    Value in relation to what ? : Purchasing power domestically or worldwide? Other currencies?
    The dollar rules because it is the exchange and storage of value of Imperial America and there is no match in the world.
    If by value we mean wealth. the US$D rules also as we are the wealthiest country on earth in decline or not.
    What really rules is CREDIT. It is today’s money and credit is based on wealth and USA is it!
    A country without credit availability cannot grow to provide its citizens a decent standard of living. No matter how strong or stable its currency is; or how miuch gold in its vaults.
    How many cars will there be on the road; including BMWs, Lexuses, and Mercedes without car financing? How many will own their home without a mortgages? How many will take a vacation without their credit card? The dollar PooH! ?????? Try to rent a cae without a credit card.
    What is needed is healthy credit standards now basically set by financial institutions with little control.
    Money? Currencies? If Soros can KO the English pound, he may succeed in KO’s the dollar, but he will never control CREDIT!
    The subject of attention must change from MONEY to CREDIT somehow and someone must develop the metrics and abetter modus operandi for the 21st Century.

  6. Lyle says:

    If you believe the only real money is gold, then starting with the $20 an ounce price in 1900 to 1250 or so today you get a 98.4% drop or if you go back a bit to when gold was 1800 you get 98.8% Many of the audit the Fed folks also believe in the gold standard as well. Of course by that standard the US defaulted in 1933 as well as gold clauses in Treasury Securities were cancelled.

  7. Taking the opposite side of the argument, note as well that coins buried in the ground are worth far more than their notional value, due to their collectible status now. And, for that matter, even freshly-minted pennies and nickels are now worth about as much for their metal content as their notional value. So well-preserved “physical dollars” haven’t lost as much value as the CPI would suggest.

  8. victor says:

    Another way of looking at this is without the rent as most dollar users, US and foreign alike spend their dollar as soon as they get it, sometimes even before, on goods incl. real estate, and services; few “hold” it. So imagine the average dollar in the hand of the user back in Dec-59 vs. today factoring in his income and the quality of the goods/services. Without any hesitation I’d say today’s user is better off. As for the few who stuffed their dollar in a mattress, they’re overwhelmingly foreign “holders” who see their national currency going down and down vs. a “stable”, ever increasing in value US$, Tanzania comes to mind, even Belarus.

  9. washunate says:

    Eh, it sounds like everyone is saying the same thing. If you have $100,000 in a demand deposit account today, and you want to transport the purchasing power of that wealth to, say, 2050, you better put those dollars into Something Else, because if you don’t, the value of those dollars in the future is very likely going to be materially less than their value today.

    Personally, my beef with the government is who they give the dollars to, not how many they print.