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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Impact of US Dollar Inflation and Devaluation - ILLUSION, MYTH AND MAGIC

Currencies / US Dollar Jan 10, 2008 - 06:02 AM GMT

By: Mark_B_Rasmussen



What does it look like when we convert U.S. benchmarks of value to other THINGS over the past 8 years?

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?


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.

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.



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.


By Mark B. Rasmussen

Mark is a real estate appraiser/broker by profession

Copyright © 2008 Mark B. Rasmussen

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