Jan 262011
Whether the ultimate outcome of this financial crisis is defined by inflation or deflation is argued back and forth by economists and financial analysts. What is infrequently recognized is that we are becoming poorer, regardless of which outcome you believe is occurring.
Bill Bonner writes about that in a piece at the Daily Reckoning and illustrates the impoverishment in several ways:
- Houses are Americans’ most important asset. And the average house is down about 25% since 2006. But that’s in terms of dollars. In terms of gold, the loss is over 60%.
- Americans are having a hard time making ends meet; they’ll need cheaper housing. Their incomes are falling in real terms. Measured by the official core CPI, incomes are about flat for the last 10 years. Measured by raw cost of living numbers, household incomes are going down by about 3% to 5% per year.
- But look what has happened in terms of real money. The average US household has lost about 70% of its purchasing power.
- But some of the world’s most important commodities – including oil and food – are priced in real terms. Oil has soared in terms of dollars. But in terms of gold it has barely moved. Food prices go up and down. People may pay a lot more for their wheat and corn in dollars. But if you have gold, almost nothing is more expensive.
You may continue to argue whether inflation or deflation is occurring. For a while, that debate will remain open. However, the citizens of this country are becoming poorer by the day, by almost any measurement that is objective. Furthermore, that condition has probably been occurring since the late 1970s.
