ALOHA !!

Yep ... A beautiful chart showing YOUR TAX DOLLARS AT WORK!!! The Reps and Dems thank you for your vote ...

Our Founding Fathers warned us about this con game 200 years ago, but we are ever so much "smarter" than those old geezers from the 18th century with our spreadsheets and futures! Keynes is an ASS !!!

What future?

Rome?
http://www.youtube.com/watch?v=rErukvYVPOI

Sharpest declines seem to come in years associated with war: ww1,ww2 and vietnam war. Is that when we print money off the books? Are we doing that now?

how is the "average american" suppose to protect their purchasing power...

Especially if saving money can't keep up with inflation?

Over time, the nature of currencies is to increase in quantity and decrease in value, The $ is not alone…

Great art work above and quite telling that the first major leg down in dollar purchasing power came following creation of the Fed in 1913. It is amazing that Friends and Family became such bitter foes for those 4 mustard gassed years, but at least the bankers did well and got the skids greased to lead to where we are today.

marvelous...simple and informative picture,
if i may impose, can we get one for the british pound and euro..just for comparison sake..thanks again for your wonderful site. I read you every afternoon my time, which is 8. morning yrs.
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Morgan Stanley former star economist Andy Xie:
"The recession would start from the United States and spiral down into Asia where exporters would be hit, Xie, 46, told Reuters in a telephone interview."

http://www.reuters.com/article/reutersEdge/idUSSIN15117620070430?pageNumber=1

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Housing has bottomed. Oh Yeah !

wunderbar! from germany

I generally find the comments here to be quite valid. However, this is the exception.

The fact that the US dollar has lost about 92% of its value in about 100 years has nonetheless been good for most of us. It is not correct to focus only on the dollar's loss of value. This is because inflation has driven up income and wages to a much greater extent.

I can remember that in the late 1940s and early 1950s a weekly wage of $50-$100 was considered a good middle class wage. Today's wages are so far in excess of this standard that it is an insult to pay that even as a welfare stipend.

As far as the shrinking 100 year old dollar is concerned, even if it were placed in a bank savings account at an average of 2-3% over that period, the value of the account would still exceed the shrinkage.

On the other hand, the rare person who hid it in a mattress would have suffered the full 98% shrinkage.

ALOHA !!

lessmore ... Please give us some specific examples as to how wages have kept up with inflation since you are comparing apples to oranges, by omitting that taxes have also risen due to inflation along with every other cost to survive!

Also show how $10,000 in a 2%-3% savings account was a great deal over the past 100 years. What type of savings account are you speaking of ... passbook rate or CDs since the range of savings accounts offered today did not exist 100 years ago. Who exactly was paying 3% back in 1907?

The only statement you make that I agree with so far is that it was unwise to stuff money in a mattress!

Kaimu:
As to interest rates, I have no personal recollection prior to 1940, except that I know my parents said they received a little under 1% in the 1930s. However, I did have pass book accounts since the late 1940s. In the 1940s the interest rate was 1 to 1 1/2%. By the late 1950s it was 1 1/2 to 2%. In the 1960s it was over 3%. In the 1970s and 1980s it was well over 5%. Since then it has generally on average exceeded 4%. Thus, I maintain that my statement of an average 2-3% interest is in line with the facts.

Regarding your challenge to: "Also show how $10,000 in a 2%-3% savings account was a great deal over the past 100 years." My statement was not that it was a great deal, but merely that the interest on the savings account would exceed the 100 year 92% shrinkage. My statement is accurate.

With respect to taxes, of course they are higher. However, that does not have a material impact since taxes are generally proportionate to income. Rather, your narrowly focused comparison of a dollar bill in a vacuum 100 years apart distorts fact. It is meaningless unless you, at least, also compare incomes 100 years apart.

The graph on top of this page shows the effects of inflation on the USD - and inflation it shows very well indeed. To compare this with an *individual's purchasing power* you'd have to include the individual's earnings in the picture, among other factors. The average individual may have been making $100/week 100 years ago (just for the sake of argument), today's it's thousands. The question is , can these earnings (post taxes) buy the same that they did 100 years ago?

If inflation over the 100 years was 2000% (again for the sake of argument using 3%/y) but earnings were also up 2000% then there is little difference - if the tax rate stayed constant in percentage-wise. (BTW, 3%/y is roughly 19X over 100 years.)

BTW, for the period 1800 to 1930, nominal rates of
interest were relatively stable in the range of 3 - 6%, averaging 4.5%. Now, I don't know if you could have walked into a bank and invest at something close to these rates or not. You'd have to include inflation to compute real rates as well. Data source: http://www.spectrumeconomics.com/specpdfs/Realrate.pdf

ALOHA !!

Since probably 90% of readers here at Bill Cara blog were either not alive or earning an income in the 1940s or before, which includes me, lets just look at "real earnings" for the Average Joe since 1970, adjusted for inflation.

There are certain segments of the population whose earnings are extraordinary so we will disallow those and concentrate on average hourly earnings. Most of us are not Jim Carrey making $20mil per movie!

From 1970 average hourly wages have risen to around $18/hr, however inflation adjusted earnings are actually declining based on what a dollar can buy now versus in 1970. This chart shows what most Americans feel and goes back to 1964. It is based on BLS statistics.

Link: http://www.nowandfutures.com/images/hourly_earnings_cpi_lies1964-current.png

As SiO2 has mentioned it does not matter what your gross income is but more what your net income is after taxes and what you can purchase with that net income.

As a real life example I have many friends who live in San Francisco who earn over $100k and still can't really afford a single family home any where in town! What good is a high income level in the upper 15% percentile if you cannot afford basic housing?

Once again it is not the price of gas, medicine, cars and houses going up but the purchasing power of the dollar that is declining.

Kaimu:
In relation to the chart you link, you state: "From 1970 average hourly wages have risen to around $18/hr, however inflation adjusted earnings are actually declining based on what a dollar can buy now versus in 1970. This chart shows what most Americans feel and goes back to 1964. It is based on BLS statistics".

Insofar as it is based on BLS statistics, the chart shows only that from 1970 while real wages rose from about $3 to $17, inflation adjusted wages rose from about $1.90 to about $3.40. I do not dispute that. The alleged wage decline that you refer to is based, not BLS statistics, but on the separate work of shadowstats.com. I do not know if you vouch for the work of Shadowstats.com or if you can even explain how they arrive at their representations. I do not blindly accept representations without an explanation of the underlying biases and assumptions.

With regard to San Francisco, it is not representative of the country. In most parts of the country an income of $100,000 is sufficient to purchase a house, and as the housing bubble deflates it will be more than just sufficient.

It is complex, and for some people costs and circumstances are quite different (for example if you live in a farm vs if you live in a modern city).

On the issue of taxes, they may be significantly higher today, however, what do you get today compared what what you got 50 or 100 years ago? How about roads, airports, garbage collection, etc, similarly, medical services, and so on.

I would like to find somewhere the cost of simple items back then, such as a liter of milk (safe milk than wouldn't kill you, that is), a pound of butter, etc. Housing is full of geographical bubbles, but also, how do you compare the quality of houses now compared with 50 with 100 years ago?

It is complex, but the point is that the above graph does not represent purchasing power. What bothers me is that the real inflation is much higher than what is being reported.

ALOHA !!

lessmore ... shadowstats is the same company that produces and updates the M3 charts that Bill Cara has posted here in the past.

John Williams is the founder of shadowstats.com and here is a brief bio from his website.
"Some Biographical & Additional Background Information: Walter J. "John" Williams was born in 1949. He received an A.B. in Economics, cum laude, from Dartmouth College in 1971, and was awarded a M.B.A. from Dartmouth's Amos Tuck School of Business Administration in 1972, where he was named an Edward Tuck Scholar. During his career as a consulting economist, John has worked with individuals as well as Fortune 500 companies."

Where are your charts from?

Okay ... just who's stats do you blindly accept? Certainly you must have some sort of proof or studies that cite your findings that we are better off now since inflation has raised all our wages to record highs. Can you please show us that chart or the report where you get your info?

I have no friends or relatives that say they are better off now than thirty years ago, even ones that live in Texas and Louisiana where houses are cheaper. See that is a problem since most high paying jobs are in places where houses cost a lot. As an example here on the Big Island there are mainly low paying farm and hotel service work and some construction jobs, but not enough, so I have met many Hawaiians who work in Las Vegas and commute every 3-4 months to visit family and get their "island fix". Lots of Hawaiians in Vegas! The property values have risen here due to retirees from California so many here rent. It used to be affordable to buy houses or condos in Vegas, its not now.

Kaimu: Good Morning. It should be obvious that I am not relying on my own charts or statistics. My initial and primary discussion concerned the chart posted at the top of the page. That chart, on its face, shows only the reduction in purchasing power of the dollar from 1900 to the present. On its face, it purports to represent that, because of inflation, the dollar earned by a wage earner more than 100 years ago would have the power today to purchase only about 2-3% of what it would have had the power to purchse 100 years ago. My point remains that much of that inflation has found its way into wages and other earnings. Thus, the chart needs to also represent income for that period to provide requisite balance. Otherwise, it would incorrectly appear to represent that in 100 years more than 90% of the wealth of America's citizens has been lost. And, I maintain that such a conclusion is incorrect not on the basis of charts or statistics, but because it is manifestly incorrect.

I have not cited any other charts or statistics. Not because I do not know how to find other charts or statistics, but because they sythesize underlying facts which are often distorted because sythesizers are afflicted with their own biases and agendas.

As to whether a person is better off now than 30 years ago, some are, some aren't. However, that is not the same as claiming Americans generally suffered a more than 75% wealth loss in 30 years as suggested in this chart. That is manifestly incorrect.

ALOHA !!

The chart represents "purchasing power" of the US Dollar. Look at in these terms ... A US employer pays more "dollars" for labor in 2007 than he did in 1970. That means for US employers, the dollar buys less labor not more, compared to labor costs in 1970! Its all in the chart I posted ... the one I blindly accept ...

In 1970 $1USD buys 19.9 minutes of labor($3/hr)
In 2007 $1USD buys 3 minutes of labor($18/hr)

Which translates to consumers as well since a US dollar buys less goods and services!

Obviously you agree with that right?

Otherwise we'll have to agree to disagree, but you keep believing we're all better off with higher salaries and higher inflaation! Keep believing we're all wealthier too ... that's what "they" want you to believe! Looks like they won you over to their side ... Good luck!

Kaimu:

Good evening.

Of course I agree. Its consistent with my view that inflation has found its way into earnings.

I do not believe that we are all better off with higher wages and higher inflation because inflation is grossly uneven. Some are much too generously benefitted by excessive inflationary increases. For example, the three year degree that I earned from NYU law school in 1954 cost me $1800 in tuition. I paid $500 for the first semester, $600 for the second semester and $700 for the third semester. Tuition today is about $33000/year. With annual inflation, today a three year JD degree will cost more than $100,000. That is 56 times greater than the tuition I paid in 1951-1954. This, to an outrageous extent, exceeds the general inflation rate of about 10 times 1951-1954 prices which is represented in the subject chart. I would say that NYU along with the other major universities has grossly benefitted from inflation to a disproportionate extent in relation to the generality and will continue to do so. Those who benefit disproportionately from inflation are wealthier than the generality and those who don't aren't.

Correction:

I paid $500 for the first year, $600 for the second year and $700 for the third year not $500 for the first semester, $600 for the second semester and $700 for the third semester.

But I suspect you understood that.

ALOHA !!

lessmore ... NYU passes the cost of inflation(operating expenses/taxes)onto its students much like Hollywood studios do for a Jim Carrey movie!

Then we agree that the chart Bill Cara posted above shows that the "purchasing power" of the US dollar has declined significantly and is valid ... even for "rich people"!

KAIMU RESTS YOUR HONOR !!!!

Mahalo!

Kaimu:
Good morning.

I am guessing that the chart is just an inversion of someone's US price inflation chart for the period from 1900-2005 with the inverted chart line outlining a collapsing dollar bill. I am guessing because it has not been clearly explained and also if you were to invert the chart it appears to be a price inflation chart. If it were to be offered only as such I would have no objection.

However, I am unable to readily accept your claim that the chart (also) "shows that "the 'purchasing power' of the US dollar has declined significantly." That requires the conclusion that price inflation and the purchasing power of the US dollar have a direct converse relationship. That is quite a leap. Initially, I would need to know how you define the term "US dollar" before I can even begin to form an opinion.

In my view, the issue here is quite complex. We are not going to resolve it. I suggest we just let it rest.