Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Your Incredibly Shrinking Dollar

  by    0   0

Over the last 12 months, the purchasing power of your dollar has dropped at the fastest rate since 2011.

According to the latest data released by the Bureau of Labor and Statistics, the Consumer Price Index (CPI) jumped by 2.8% year-over-year in May. That follows on the heels of a 2.5% leap year-over-year in April.

In other words, prices are going up. That’s not good news for people who buy stuff.

Pundits and talking heads call a rising CPI inflation. But as Peter Schiff explained in his podcast last week, people often confuse rising prices with inflation. In fact, the CPI merely measures one effect of inflation.

Remember, a lot of people think that inflation is what happens to prices. It’s not. Inflation is what happens to money. That’s where the word comes from. Inflate means to expand and prices don’t expand. Prices go up, prices go down. What expands? The money supply. It expands during inflation, it contracts during deflation. A result of an expansion of the money supply inflation is that prices tend to rise.”

And of course, the Federal Reserve drastically expanded the money supply in the wake of the 2008 financial crisis.

In simplest terms, the continual climb in CPI means you pay more for less. The purchasing power of the dollar fell 2.93% in May from a year ago, the fastest drop since November 2011.

This graph shows the persistent downward trajectory of the value of a dollar.

The CPI excluding food and energy rose 2.24% from a year ago, after having already risen 2.14% in April.

Two or 3 percent may not sound like much, but those price increases really start to add up over time. In just five years, you’re looking at a 10% to 15% price increase – or a 10 to 15% debasement of your money.

And here’s the dirty little secret. Prices are going up even faster than the CPI indicates.

The government does all kinds of little accounting tricks to pushes the CPI number down. For example, the CPI for used cars actually fell 1.7% over the last year. In fact, the CPI for used vehicles is at the same level that it was in May 1995. In other words, the price of a used car today is theoretically same as it was more than two decades ago.

Now, do you really think a used car is cheaper today than it was 23 years ago? Of course not. An article in Wolf Street explains the number.

The big differences between reality and CPI are numerous adjustments, including most prominently “Hedonic Quality Adjustments.” When a model has quality improvements from one year to the next, the price index for that model is adjusted for the costs of these improvements, based on data provided by the automakers … This makes sense on some theoretical level, as vehicles have gotten a lot better over the decades. While consumers pay a lot more, they also get a lot more. That’s the theory behind extracting the costs of quality improvements from inflation data. These adjustments lower CPI data compared to actual price changes that car buyers experience in reality. In reality, a five-year-old compact car today costs a lot more than a five-year-old compact car cost in 1994, and shoppers who want a five-year-old car have to cough up the new prices and cannot buy anything with the amounts they were able to buy a five-year-old compact in 1994.”

The devaluing of the dollar is on purpose. The Federal Reserve wants an “inflation rate” of 2%. Central bankers think it’s good when the purchasing power of the dollar falls. And it is good – for the bankers and the political class who get new dollars pumped into the system first. For the rest of us, not so much, as the Tooth Fairy aptly demonstrates.

This is one reason why it’s a good idea to buy gold and silver. Historically, precious metals serve as a hedge against inflation. Typically, as the value of the dollar drops, the price of gold and silver in dollars goes up – just like the price of bread and gasoline go up.

WhyBuyGoldNowBanner.070815.590

Get Peter Schiff’s most important Gold headlines once per week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!

Photo by frankieleon via Flickr.


Related Posts

Yield Curve Inverts Flashing Recession Warning; Stocks Plunge

The yield on the 10-year Treasury fell below the yield on the 2-year for the first time in 12 years, stoking recession fears and tanking stock markets. Yield curve inversions have preceded all nine recessions since 1955.  This was the first time the 10-year Treasury yield has dropped below the 2-year yield since June 2007 […]

READ MORE →

China Adds 10 More Tons of Gold to Its Hoard

the country of china shown on a globeChina bought gold for the eighth straight month in July, adding another 10 tons to its rapidly growing hoard. The recent purchases boosted the People’s Bank of China’s gold reserves to 62.26 million ounces – about 1, 945 tons.  China has added about 94 tons of gold to its stash over the past eight months.

READ MORE →

The Fed Has the US Economy on Life Support

The Federal Reserve has the US economy on monetary life support and Daily Reckoning managing editor Brian Maher says it will never again breathe on its own. As hedge fund manager Kyle Bass put it, the economy is trapped within the inescapable tractor beam of zero percent interest rates.

READ MORE →

2019 Federal Budget Deficit Already Above 2018 Number

The federal government continues to spend America into a black hole and has already topped last year’s budget deficit with two months left in the fiscal year. The US budget deficit in July came in at $120 billion thanks to a surge in spending, according to data released by the Treasury Department. Uncle Sam spent […]

READ MORE →

Is the Mainstream Turning Bullish on Gold?

In a podcast a couple of weeks ago, Peter Schiff said we now have all the elements of a gold bull market. Well, it looks like the mainstream might be starting to catch on. A headline at Bloomberg on Friday proclaimed “Hedge Funds Go All-In on Gold.” According to the Bloomberg report, hedge funds increased […]

READ MORE →

Comments are closed.

Call Now