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The Federal Reserve Hasn’t Debased the Dollar and Destroyed Your Purchasing Power

You’ve almost certainly seen the chart below over the years – it shows the purchasing power of the US Dollar over time.  It looks terrifying.  And it’s constantly cited by hyperinflationists and other people trying to convince you that the world is quickly coming to an end thanks to the “fiat monetary system” and all the “money printing” that’s going on due to nefarious governments.  Well, the chart is basically a misrepresentation of anything important.

USD_PP1

(Figure 1 – Stupid Chart)

The problem is, this chart doesn’t show whether per capita wages are rising or falling.  For instance, if your dollars buy you half as many eggs today as they did in 1913, but your income is twice as high as it was in 1913 then you haven’t gone backwards.  Yes, the USD’s purchasing power has fallen, but your ability to buy the same quantity of eggs has remained exactly the same.  Your living standard hasn’t fallen even if the purchasing power of the dollar has declined.

So, it’s important to put this in the right perspective here.  And when we look at this discussion it’s best to use an inflation adjusted perspective of median wages. While wages haven’t soared, it’s very clear that median wages have increased over time meaning that our purchasing power has not been debased.

 (Figure 2 – Smart Chart)

It’s not exactly a thing of glory (especially the last 20 years or so), but it clearly tells a very different story than the chart above which really tells us nothing. Our living standards have improved dramatically despite the decline in the USD’s purchasing power. So, next time some hyperinflationist throws the USD purchasing power chart in your face refer him to this post and tell him he isn’t telling the full story.

This data is also consistent with global wealth and income trends according to Branko Milanovich. Hyperinflationsts like to claim that the USD has lost 99% of its purchasing power, when, in fact, the average American earns 50X what the global poor earn. In global terms, the average American is in the top 1% of wealth and income. Not only has the Dollar not been debased over this period, its citizens have enjoyed an unmatched period of prosperity, wealth and income generation. The idea that Americans have suffered at the hands of the US Dollar fiat system is not only factually wrong. It’s preposterously misleading.

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