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Think Different About Purchasing Power

Gold Standard Institute's picture




 

by Keith Weiner

 

The dollar is always losing value. To measure the decline, people turn to the Consumer Price Index (CPI), or various alternative measures such as Shadow Stats or Billion Prices Project. They measure a basket of goods, and we can see how it changes every year.

However, companies are constantly cutting costs. If we see nominal—i.e. dollar—prices rising, it’s despite this relentless increase in efficiency. This graphic illustrates the disparity (I credit Tom Selgas for a brilliant visualization, which I recreated from memory).

Hidden Debasement

CPI measures only the orange zone, the tip of the iceberg. Most people don’t see the gray zone, and that’s a result of the greatest sleight of hand ever.

We need an accurate way to measure monetary debasement. For example, in retirement planning it’s tempting to divide your net worth by the cost of consumer goods. This seems to show your purchasing power. For example, if you have $200,000 and the cost of groceries for a year is $20,000 then you can eat for ten years.

However, this approach is flawed. To see why, let’s briefly consider primitive times when there was no lending or banking. People had to set aside some of their income, to buy a durable good like salt or silver—hoarding. When they could no longer work, they sold a little bit every week to buy food—dishoarding. People accumulated wealth while working, and dissipated it in retirement.

Life got a lot better with the advent of lending, because interest enables people to live on the income generated by their savings. People no longer consumed their principal, worrying about outliving their savings.

Don’t think of capital assets as something to sell in order to eat. An old expression says, if you give a man a fish then he eats for a day, but if you teach a man to fish then he eats for a lifetime. Think of a productive asset like a fishery. It should produce for a lifetime. It should not be consumed as a mere fish.

Capital assets should be valued in terms of how many groceries they can buy, not by liquidation, but by production. Unfortunately, monetary policy is making this increasingly difficult. Interest rates have been falling for over three decades, and now there’s scant yield to be had anywhere. We are regressing to the dark ages of paying for retirement by dishoarding.

CPI understates monetary debasement, because companies are constantly becoming more efficient. Dividing wealth by CPI compounds the error, because asset prices are rising.

We need a different way of looking at monetary debasement. I propose Yield Purchasing Power (YPP).  YPP is the yield on assets divided by the Consumer Price Index (or other index). The idea is to look at the productivity of assets to see what you can really afford.

Let me explain YPP with a simple example. If hamburgers sell for $5 and interest is 10%, then $50 of capital lets you eat one burger per year. Suppose the price of the burger doesn’t change, but the interest rate falls to 0.1%. You now need $5,000 in capital to earn that burger. Unfortunately, if you still only have $50, then you only get one burger every 100 years.

CPI doesn’t show this collapse in purchasing power, but YPP does.

Let’s take a look at YPP since 1962. The graph is inverted, to make the trend easier to see.

Yield Purchasing Power

It’s interesting that the drop in purchasing power (rising in this inverted graph) begins around 1984, when the conventional view said inflation was tamed. CPI may have slowed down, but interest was falling too.

YPP shows us a staggering monetary devaluation—a classic parabola. The problem isn’t skyrocketing prices, but collapsing yields.

You need more and more assets to afford the same lifestyle. If your assets don’t keep up, then you have to liquidate your capital.

 

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Thu, 04/30/2015 - 09:54 | 6046696 OC Sure
OC Sure's picture
Life is Beautiful. Acceptance of the Fed's Counterfeiting Policy is akin to the father in the movie, Life is Beautiful, amusing his son while surrounded by overlords and barbedwire. The father in this movie truly was stifled. Are we?

 

Thu, 04/30/2015 - 09:45 | 6046649 Niall Of The Ni...
Niall Of The Nine Hostages's picture

Most people's actual "retirement plan" in primitive times was their children. Any peasant who accumulated enough gold, silver or anything durable to last them for any length of time would quickly become the target of thieves and taxmen. Only those rich and pwoerful enough that they could afford to pay big, strong men with swords or spears to guard their valuables hoarded much gold and silver.

Thu, 04/30/2015 - 08:41 | 6046413 GuusjA
GuusjA's picture

In het systeem 'Leven en Laten Leven' zijn de (grond)wetten gebaseerd op 'de wiskundige definitie van de absolute waarheid', 'de wiskundige definitie van de evoluerende werkelijkheid' en 'de wiskundige definitie van het creatief bewustzijn'. 

 

http://www.ftm.nl/exclusive/bankierseed-een-stok-om-mee-te-slaan/

 

Om politici toch nog wat te doen te geven, moeten ze leren oordelen volgens de normen van de 'Logica van de 1', Ofwel proberen te bepalen wat 'het beste is voor henzelf en het omvattende geweten'. Natuurlijk zal 'de tijd' leren of dat goed was. Nu vragen velen wat nu het wezenlijke verschil is tussen het systeem 'Liegen om te Leven' en het systeem 'Leven en Laten Leven'. In de optiek van netwerk @SuperWil is het enigste verschil dat wat nu in het schemerige gebied van 'bijzonder beheer bij banken' gebeurt, gewoon wordt overgenomen door de (lokale) gemeenteraden. 

 

De bankierseed is op 1 april 2015 ingevoerd voor alle bankiers van Nederland, in totaal zo’n 90.000 mensen. Tot die tijd gold de eed alleen voor het hogere echelon van banken en verzekeraars en zodoende kon de voorkennis van de 3e SpinozaGolf discreet worden verspreid. Uiteraard is er vaak lacherig gedaan over de eed, omdat netwerk Juncker met de 'normen van de bankenunie' net deden of ze het systeem 'Liegen om te Leven' wilden redden. De Griekse regering heeft een nieuw onderhandelingsteam die de bankiers zullen confronteren met de werking van het GELD=ZUURSTOF-paradigma. Netwerk @MinPres is al begonnen om kamerleden te informeren dat burgemeesters worden geacht om hun 'openbare orde te bewaken' door een zorgvuldige afweging te maken tussen de belangen van alle mensen die in een bepaalde RuimteTijd verkeren. 

 

http://www.ftm.nl/column/van-wijnbergen-door-jaloezie-verblind/#comment-...

 

Twee jaar geleden is de informatie al uitgelekt dat 'de activiteiten van de (centrale) banken die relevant zijn voor het systeem 'Leven en Laten Leven' zullen worden geïntegreerd met de (lokale) overheid'. Dit zou betekenen dat de geldstromen in het reguliere bankwezen – 120 biljoen dollar - wordt gecontroleerd door de gekozen volksvertegenwoordigers.

 

http://www.nrc.nl/nieuws/2015/04/29/nederland-wacht-nieuwe-europese-nahe...

 

VVD-Kamerlid Mark Harbers kon al vertellen dat de 'echte duidelijkheid pas later dit jaar komt'. Immers de eentuele naheffing uit Europa zou noodzakelijk zijn omdat 'de overwinnaar van de 3e SpinozaGolf de geschiedenis mag schrijven'. Door nu kritiek te hebben op 'naheffingen en correcties achteraf' komt het DAB-systeem steeds verder in beeld om ingevoerd te worden.

Thu, 04/30/2015 - 10:02 | 6046732 Baa baa
Baa baa's picture

Now, in English please...

Thu, 04/30/2015 - 09:52 | 6046689 JohnGaltsChild
JohnGaltsChild's picture

You can say that again!

Thu, 04/30/2015 - 08:38 | 6046408 Ethical_Money
Ethical_Money's picture

Life got a lot better with the advent of lending, because interest enables people to live on the income generated by their savings. People no longer consumed their principal, worrying about outliving their savings.

1) Interest from one's fellow countrymen is forbidden by Deuteronomy 23:19-20.

2) Common stock as private money requires no borrowing, lending or interest; instead capital is consolidated and shared democratically, at least per share, with stock-splits to distribute profits.

3) Common stock can be sold as needed for living expenses without dissipating the assets of the issuing company.

4) Living off interest is thus parasitical, undemocratic and destructive.

Moreover, a return to a gold standard would reward money hoarding. But progress requires investment, not money hoarding. See Matthew 25:14-30 for the Lord's opinion of money hoarding ("Lazy, wicked ...").

Also, government recognition of gold or anything else as money except its own (inexpensive) fiat is inherently unjust since that recognition would reward private or foreign interests at the expense of the general welfare, its proper concern.

Thu, 04/30/2015 - 10:58 | 6046896 Crazed Smoker
Crazed Smoker's picture

Good points.  Our ancestors were not as clueless as many think.  We live in a world where 85 people have more financial wealth assets than half the worlds population combined, or the 3.6 billion people who are at the bottom of wealth distribution.   I'm not so sure that working tirelessly to ensure these people have access to significant "risk free returns" is a great noble goal considering.  We may only be perpetuating a form of continued exploitation of the ruthless dominance hierarchy that mankind has been participating in for centuries.  There may be no better system than going back to the "money makes money" model - but just saying...  it is what it is.

Thu, 04/30/2015 - 13:01 | 6047367 Ethical_Money
Ethical_Money's picture

In the Bible, profits are good but profit taking ISN'T good.   Common stock as private money allows profits without profit taking since no dividends are required with common stock; the common stock ITSELF can function as money and be distributed via stock splits without dissipating the assets (profit taking).

Thu, 04/30/2015 - 08:27 | 6046380 Pascal1967
Pascal1967's picture

I like the article.  However, you really should invert your YPP graph to have it go downward.  To someone scanning the graph quickly, and not studying it carefully, it gives the opposite impression.

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