Posts filed under “Currency”

Has the Dollar Really Lost 97% of Its Value? (No)



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 . . .


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

2010 Reminder: QE = Currency Debasement and Inflation

One of my biggest complaints about the media is the lack of accountability. People say things on TV in print an on radio, and then . . .  Poof!  No consequences. They influence public perception of issues, affect policy debates, drive legislation. This is a perfect example of a stern warning of currency debasement and…Read More

Category: Currency, Inflation, Really, really bad calls

The Optimal Currency Area in a Liquidity Trap

Category: Currency, Think Tank

Past, Present, and Future Money (Topologies, Powers, Trends)

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topology of money
Source: Climateer Investing


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Category: Currency, Digital Media

China Invented Every Form of Money

9 Mind-Blowing Facts About Money China: Invented every single major form of currency: metal coins, paper money, and fiat currency not backed by precious metals Seized gold six centuries before Franklin Roosevelt, in order to prop up its fiat currency and prevent runaway inflation Debt Forgiveness Is The Basis for Modern Civilization Religions were founded…Read More

Category: Currency, Think Tank

Currency Markets Are Rigged

U.S. Justice Department Opens Criminal Probe Into Currency Market Manipulation Currency markets are massively rigged. Bloomberg reports today: The U.S. Justice Department has opened a criminal investigation of possible manipulation of the $5.3 trillion-a-day foreign exchange market, a person familiar with the matter said. The Federal Bureau of Investigation, which is also looking into alleged…Read More

Category: Currency, Legal, Think Tank

Crisis Chronicles: The “Not So Great” Re-Coinage of 1696

Crisis Chronicles: The “Not So Great” Re-Coinage of 1696 James Narron and David Skeie September 30, 2013       In the late 1600s, England operated a bi-metallic monetary system of high-value gold coins and lower-value silver coins. In the early 1690s, however, the market price of silver began to rise at a time when…Read More

Category: Currency, Think Tank

How to Bypass the Debt Limit

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Bypass the Debt Limit
Source: Yahoo Finance

Category: Currency, Politics, Video

Capital Flight inside the Euro Area: Cooling Off a Fire Sale

Capital Flight inside the Euro Area: Cooling Off a Fire Sale Matthew Higgins and Thomas Klitgaard Liberty Street Economics, October 02, 2013     Countries in the euro area periphery such as Greece, Italy, Portugal, and Spain saw large-scale capital flight in 2011 and the first half of 2012. While events unfolded much like a…Read More

Category: Currency, Federal Reserve, Think Tank

Category: Currency, Think Tank