Impact of US Dollar Inflation and Devaluation - ILLUSION, MYTH AND MAGIC
Currencies / US Dollar Jan 10, 2008 - 06:02 AMBy: Mark_B_Rasmussen
THE DOLLAR HAS LOST OVER 97% OF ITS PURCHASING POWER SINCE 1913 (THE FOUNDING OF THE FEDERAL RESERVE 94 YRS. AGO).
What does it look like when we convert U.S. benchmarks of value to other THINGS over the past 8 years?
| DOLLAR | EURO | OIL | NAT GAS | URANIUM | GOLD | SILVER | |
| 12/99 | 1 | 0.84 | 25 | 6.5 | 9 | 290 | 5.19 |
| 12/06 | 1 | 1.32 | 61 | 6.3 | 72 | 635 | 12.88 |
| 12/07 | 1 | 1.46 | 97 | 7.2 | 90 | 833 | 14.77 |
| 8 YR INCREASE | 0.62 | 72 | 3.7 | 81 | 81 | 543 | 9.58 |
| % DOLLAR LOSS | 42% | 74% | 50% | 50% | 90% | 65% | 65% |
I see a trend here, do you?
U.S. RECORD EQUITY INDEX PRICES 2000
| DOW | 1/2000 | 11722 |
| S & P | 24/03/2000 | 1553 |
| NASDAQ | 10/03/2000 | 5048 |
Following are the U.S. equity indexes converted to other measures of value from 12-1999 to 12-31-2007.
| CLOSING 12/31/07 | DOLLAR | EURO | OIL | NAT GAS | URANIUM | GOLD | SILVER |
| DOW | 13265 | 7694 | 3449 | 6633 | 1327 | 4643 | 4643 |
| S & P | 1468 | 851 | 382 | 1078 | 147 | 514 | 514 |
| NASDAQ | 2652 | 1538 | 690 | 1326 | 265 | 928 | 928 |
So much for nominal record highs in real terms. If this is a bull market for equities, what would a bear market look like?
This is the hidden part of the “WEALTH AFFECT” equation. You get more dollars and feel ever poorer.
The headline nominal numbers look great except when compared to other measures of value (real purchasing power). Of course we could use barley, wheat, soy beans, rice, milk, eggs, butter, beef, gasoline, college tuition, health care/insurance etc., etc., etc.
The next part of this missive is interactive.
VALUE OF YOUR REAL ESTATE IN REAL TERMS:
PRESENT VALUE OF YOUR REAL ESTATE _____________ REAL VALUE 2000
EURO X .58 = _____________
OIL X .26 = _____________
NAT GAS X .50 = _____________
URANIUM X .10 = _____________
GOLD X .35 = _____________
SILVER X .35 = ____________
Some little acknowledged elements of the “WEALTH AFFECT” are:
• One must go into debt to enjoy the “WEALTH AFFECT” and decimate his balance sheet with mortgage debt. This was good for lenders for awhile. It appears lender's unmitigated greed, recklessness and deceit is being duly rewarded.
• The “WEALTH AFFECT” completely disregards the need for consistent and sustainable income to service the growing debt.
• This usually results in greater debt service as a % of income for a very long time. This is wealth transfer by claims against future income…..a debt slave or sharecropper as Warren Buffet calls it. If the loan is adjustable it can be an incrementally increasing % of income over time.
• Origination costs of the debt is further wealth transfer from borrower to lender.
• The debt declines very slowly regardless of whether the asset declines in value, owing more than the value of the asset. The new legislation to “protect borrowers” from loss of their homes is designed so that homeowners can continue to pay considerably more than their home is worth and the lender does not have to foreclose and have another huge and well deserved write down/loss. “I'm from the Gov'mint and I'm here to help you”.
• Insurance premiums increase because of the increased cost of replacement due to inflating costs.
• AMT (Alternative Minimum Tax) is the confiscatory tax levied on short term profits.
• The benefit, of the “WEALTH AFFECT”, is that the borrower can borrow a considerable amount against future earnings……today, bring those earnings into the present and pay for short lived prosperity/pleasure for decades into the future.
• If/when the asset/real estate declines in value faster than the loan declines, we have the “POVERTY AFFECT”?
The net result of this illusion, is that most american's largest asset is declining in value and the dollars they are denominated/measured in, are declining in value also. How do you like the “WEALTH AFFECT“ now? Clearly the greatest fraud ever perpetrated against the American people.
One should not forget that Eduard Ponzi is the father of contemporary U.S. economics and that the 1922 Weimar Republic of Germany and current day Zimbabwe are the models of U.S. monetary policy and that of central banks around the globe.
“Inflate or die” is the battle cry/mantra of all central banks. They must increase/inflate fiat unmoney backed by nothing. The U.S. Dollar is an (IOU…… nothing) and the EURO is a (Who O'S U……..nothing)!
”By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens…There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
John Maynard Keynes……attributed to Vladimir Lenin.
NOW YOU ARE ONE IN A MILLION!
By Mark B. Rasmussen
Mark is a real estate appraiser/broker by profession
Copyright © 2008 Mark B. Rasmussen
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