Today I want to talk about a disappearing phenomenon before it is gone, your dollar’s purchasing power. The dollar is the world’s reserve currency and the current arrangement was set up at Bretton Woods in 1944 as the US was set to help the rest of the world after the war. America had all the gold, had the atomic bomb, had the manufacturing, had the least destroyed nation and had the best chance of helping the world rebuild. The Soviet Union made a strong alternate case shortly after the war and the two sides were soon locked in decades of cold war. The US dollar was originally backed by gold, loved by the world and trusted by the world. Dwight Eisenhower took care to preserve the dollar and the purchasing power as soon as the post war inflation had come under control. The United States ran a very high debt to GDP during the war due to the weapons and war spending. Surprisingly we are running at the highest levels since then currently. I don’t see a world war happening for America. One on the horizon perhaps but I digress.
The system was good for the rest of the world as America helped rebuild, the dollar became the world’s currency, and the US military enforced it all. The cracks in the armor soon appeared because by the late 60’s other world leaders like Charles De Gaulle of France were demanding gold and not the dollar. The concern was that America was living beyond its means aka the government was spending too much. He was right and the gold flowed out of America until 1971 when President Nixon temporarily closed the gold window. That was 53 years ago. The dollar has been backed by nothing but the good nature of Bernie Sanders and Nancy Pelosi since. They were in Congress then, I am sure. They are like cockroaches, they never die and just scurry away when a light is shined upon them.
The Congress controls the spending in our government and that is why I despise them so and they also make the laws of this country. Which is exactly why they won’t make a law giving themselves term limits. Bernie Sanders was once asked this question about if congressman should face term limits. His response was that they do with every election. That’s strange because last I checked the President faced an election every time he/she needed to remain in office or replace someone. Congress had no problem giving term limits to someone else. The problem with Congress and their seemingly unlimited spending is that they have a vested interest, to remain in office. They can buy votes and we have read many bills that have been voted through Congress on this cooperative. They stay in office by taking care of their donors and their districts. They aren’t doing what is best for the country, just themselves… Wow this is a fun write today. I could do this forever.
However, I want to stick with the decline in purchasing power which is caused for one reason and one reason only, too much debt. We are now over $37 trillion in debt and increasing at $1t every hundred days or so. This is sticking a toe into the Zimbabwe Zamboni. We are trying to polish the ice and cover up all the cuts and crevasses underneath but it never lasts. Zimbabwe had 100 trillion notes for sale on Ebay and we have a debt that is growing in that direction. It is also accelerating. The US Dollar has lost over 95% of its purchasing power since 1971 and we went then to paper promises. Here is how.
Let’s go to Charles Hugh Smith oftwomindsblog who is writing about his own experiences. “There is only one true measure of prosperity: the purchasing power of an hour’s labor / wage. It doesn’t matter what the wage or price numbers are, what matters is: how much can you buy with an hour’s wage?
Fact: in 1977, it took 2.25 days of work (18 hours) to pay the monthly rent on my studio apartment in the most expensive city in the U.S., Honolulu. In virtually any other city or town, the rent would have been less. I was 23 years old, working as a non-union apprentice carpenter for a small contractor. The pay was a bit above average, but by no means fabulous. I wasn’t working at Goldman Sachs. The rent was fair market; it wasn’t some special deal offered by a relative.
Since this was a cheap apartment, let’s round that up to 3 days of work to pay the monthly rent.
OK, so how many young wage earners today can pay the rent for their own apartment with 3 days’ pay? Any hands? OK, the Ivy League MBA working at Goldman Sachs, making mega-six-figures in annual compensation. Any average folks out there paying their rent with 3 days’ pay? No?”
The current economists and media are surprised to hear that people are still upset with inflation. They keep saying inflation is dropping, it is at 2.5% or whatever. What they don’t understand is that people aren’t doing calculations they are looking at their money and what it can buy and how much less it can buy now, and they are mad. 5 years ago you could buy a loaf of Wonder bread for $2 let’s say. Today it is $3. 50% inflation cumulative because inflation compounds unless it goes down which it has not during the entire presidency of Joe Biden and well into Trump’s first reign. It was accelerating when Trump left and by the time Biden got there it was almost 10% after the first year. Now I know Shadow stats or real measurements are high but let’s play along with wacko CPI math and this is where it gets really quietly evil.
Government eggheads like to play games and exclude things like food and energy and shelter etc. The problem is people buy food and energy and shelter either in rent or mortgage. So, the inflation stats are often understated as we know, but here is an example. That $2 loaf of Wonder bread after the first year at 10%, the bread costs $2.20 but inflation didn’t go down the next year. For food, it was 10% again. So, the price of bread rose to $2.42 after year two. The third-year inflation didn’t come down, but the rate did. The inflation rate dropped 20%. That sounds like a lot and economists agree. That loaf of bread went up to $2.61 though as inflation compounds on the previous total. 8% up for year three. Lower, but not really. Year 4 the rate dropped even more down to 7% for food. That is definitely going in the right direction except the loaf of bread now costs $2.80. The fifth year the rate drops to 6% and the loaf of bread costs $2.96 and here we are. If I have the same $5 bill in my pocket from 5 years ago, my purchasing power just dropped from 2.5 loaves to less than 2. That’s what I can buy.
When we think of it in these terms it can often be instructive. My goal is to piss you off and have you call your Congressman and tell him if he doesn’t vote for term limits you are going to vote his ass out. If I can get you mildly upset at inflation, then I will take the small victory.
Let’s go back to Charles, “Fact: in 1985, it took about four hours of work to pay my individual healthcare insurance premium for the month ($54). This wasn’t phantom insurance with a huge deductible–it was the standard insurance offered by employers large and small. Being self-employed, I paid the premium myself.
OK, everyone who can pay a market-rate, non-subsidized, non-giant-deductible monthly healthcare insurance premium (for an individual) with good coverage with 4 hours of work, raise your hand. With an average cost around $350 a month according to reputable sources, that requires a wage of $87 an hour–roughly triple the median wage.
Costs were lower across the board: my monthly utility bill: two hours of work. Three full lunches at a working-class cafe–one hour of work. And so on.”
We showcased the kid that shot the insurance executive last week not because we condone murder, but because so many people seemed to sympathize with the kid. Despite social media, the true feelings of the common person are not expressed anywhere appropriately. High insurance costs, denied claims, rich insurance executives all create frustration and anger for many people today. One broke the law and deserved to pay. His feelings are shared though. Shared by a lot more people than the media was expecting.
Things, we shall call them, cost more which is ok if we make more at the same rate, but we do not. Smith has a chart showing this, “Then there’s this chart: wages’ share of the economy, which has dropped from 51.6% in 1975 to 43% today. Given that the U.S. GDP is $29 trillion, each point of that decline translates into major money. 8% of $29 trillion is $2.3 trillion. Now there are various ways to measure this, but you get the point: wage earners are receiving a smaller share of the economy’s output.” The bifurcation of the economy has the rich getting richer and the poor getting poorer. The problem was that they weren’t poor. They were ok, middle class, working class. Today, they are struggling because they have not shared equally in the housing boom, the stock market boom, the easy money boom. Their high paying jobs got shipped overseas. Jobs that paid well to built quality products. Today we get cheap consumer goods, back to Smith.
“Meanwhile, as the costs in hours needed to pay for essentials have soared, we’re told by apologists and propaganda pundits that cheap TVs and clothing have offset the the collapse of our purchasing power. Does anyone else find this ceaseless spew of lies irksomely misleading?
The collapse of quality has stripped away the purchasing power of earnings. Two generations ago, you could buy just about anything you needed used for a low cost, and that product would last for years or decades. My Mom bought a “vintage” dining set in 1970 that supposedly came around the Horn. Given the square nails and other indicators, I would estimate it was 100 years old at that time. I still use it today, so it’s 150 years old. I’ve reglued some of the chairs, but other than that, they’ve been zero-cost for 50 years.
Are the chairs being bought today at Ikea going to last 150 years? I’ve repaired many that fell apart in the first year. The same can be said of almost everything being manufactured today. This collapse of quality has dramatically reduced the purchasing power of wages in fundamental ways.”
Pressed board and cheap glue isn’t furniture, it’s for birdfeeders Washing machines that are cheaper to throw out than get repaired even close to a product made in the 50s that lasted 50 years. That company is long gone. Why? Their product didn’t need to be replaced so they didn’t sell enough washers. That’s why. It is good business for business to make washers that are at the end of their useful life so they can sell a new washer 10 times faster than a company that makes the best washing machine that money can buy and lasts 50 years. It isn’t good for the consumer though. Instead of adjusting for quality the government statistics say the newer short lasting cheaper washer is proof that there is no inflation.
The reason governmental officials love inflation is that they didn’t raise taxes on anyone. The poor bastard just looks in his wallet and he sees half a loaf of bread missing when gazing wistfully at his $5 bill. Its evil, it’s corrupt, and it starts with money printing like we are doing now. Trump printed $7T and Biden is matching him step for step and here comes Trump again. Lost purchasing power lost Biden the election. Lost purchasing power will lose the Republicans their congressional power lock in two years. The only way it doesn’t happen is if Trump cuts spending. The $2 trillion annual faucet gets turned off. If he does that the stock market crashes and the recession slams into us face first. Let’s say Elon can’t cut the $2 trillion he promised because he is after all Elon. Let’s say he gets $1T, the economy doesn’t slam shut but screeches to a halt and the stock market crashes and unemployment goes up and all of a sudden the debt rises to $3 trillion because deficits expand during recessions. What then Americans?
Sincerely Yours,
C Thomas Printer
Also born on this date… Archduke Franz Ferdinand.
Thank you for listening today and you can find all of our articles and more on our website cthomasprinter.com.