This study doesn't correct for baseline exponential decay due to inflation, to better highlight the meaningful variations. By comparing based on 1914 dollars it also causes old variations to be relatively more extreme and newer inflationary events to look less extreme. You must compare apples to apples.
Finally the events are quite cherry-picked. It is a conclusion looking for a result, when the statistical reason for choosing those 4 events simply isn't evident when you look at the data itself. There is no mathematical rule you could apply to your dataset that would distinctly highlight those 4 periods.
Yes, a log chart would be better. That said, apples cannot be compared in this case; probably very few of us would choose to go back to 1914. A Tesla model Y would cost $1,680 in 1901 dollars, but would have been worth millions of those same 1901 dollars. Or nothing, depending on how much charging tech you could fit in the frunk. Many quality of life items are not covered by PPP (or money supply or other measures) adjustments.
Why would anyone pay millions of dollars - that would be the equivalent to a billionaire's entire fortune - for a Tesla Model Y in 1901?
You'd have nowhere to charge it. Electricity would be more expensive than gas even if you did.
You'd benefit almost nothing from the technology. There's no internet. Not much of it would work. And it wouldn't really help move you forward technologically, as it's just too advanced.
You're basically critiquing a chart showing how purchasing power is decayed due to inflation because it isn't adjusted for "baseline" inflation. That doesn't make sense.
And yes, earlier variations are more impactful because compounding.
I will say that a better representation would be a logarithm of the inverse. The problem with doing it this way is that later changes look very small. $1.00 to $.99 is the same y-axis delta as $0.05 to $0.04 but the latter is very different.
Also we’re looking at periods that involve dramatically different monetary policy (gold standard before WWII, Bretton Woods from 1944-1976, then the current regime).
This supports my hunch that the current Iran war creates a lethal trifecta that could potentially cause a dollar collapse. 1. Massive military overspend. 2. Petrodollar squeeze (Strait of Hormuz). 3. Allies pulling out: Europe and the Gulf diversifying both their investments and defense purchases.
#1 creates oversupply of dollars and #2 and #3 lower demand. This study supports the idea that wars can indeed destroy purchasing power.
Note that most of this period falls before the modern inflation target was established in 1995. In the past 30 years we've had 75% accumulated annual inflation (aka prices have increased be a factor of exp(0.75) = 2.1) of which 16% (aka 21% of the total) took place during an inflation excursion (which lasted 2.5 years aka 8% of the total time period).
If anything the data points at "inflation targeting works and is producing slow and steady inflation" rather than "inflation comes in concentrated bursts".
Whoever wrote this article seems to think a strong dollar is fundamental to a strong economy. But, notice where it is on this timeline the only prolonged strengthening of the dollar that shows up. Yep, you've got it, the depth of the great depression. And, notice where the WWII and postwar weakening of the dollar led -- that's right, to in many ways the most prosperous economy the world has ever seen.
Because we try to figure out how things like "strengthening" and "weakening" of the dollar fit in, and we actually have policies much more intelligent than, weaking of the dollar! Collapse is imminent!
1950-1985 and 1985-now are pretty steady. Decreased inflation volatility over time.
I think your chart shows the "that inflation slowly erodes purchasing power over time." That doesn't mean there aren't periods of change - if you study economic history at all you know about the Great Depression and stagflation - but for ~50 years it's been pretty well managed.
This article over and over describes inflation as a tax or destruction, without backing those claims up. It would be a much stronger article if it focused on the main point rather than having it interspersed with the author's personal opinion of changes in the denominator of a fraction.
> The Great Inflation of 1968–1982 alone accounts for 30.2% of all cumulative purchasing power destruction since 1914 — more than WWI and WWII combined. During this 15-year period, the CPI rose from 34.1 to 97.7, nearly tripling the price level.
In 1971, the United States ended the convertibility of the US dollar to gold, effectively bringing the Bretton Woods system to an end and rendering the dollar a fiat currency.
This allowed for the global reserve currency to float which allowed for global credit expansion at the cost of the dollar value but with the benefit of more overall dollars (monetary velocity increasing)
This is what politicians want because it makes the dollar printing machine the most powerful thing, hence why everyone hung on the fedchair words every few months.
So the USD is already hyperinflated but the price relative to other currencies is still high.
Once that price collapses (and it eventually will and increasingly soon) the entire US will look like the rust belt.
- Shift back to exchange based taxes away from income taxes.
- Spin down the federal reserve, establish a US bank and adjust the self-loans against the future into a solid repayment plan at a minimal interest rate.
- Reestablished precious metal backing to core currencies (gold, silver, etc.)
- Establish constitutional amendment establishing non-living entities and restricting speech rights as such. If a CEO wants to donate personal funds, cool, no corporate backing to political organizations full-stop.
- Strong protections and some spending in favor of domestic security and production.
- Drop subsidy spending for GMO commodity foods and byproducts. Eliminate GRAS protections against any "food" that didn't exist in the US food supply before 1880. FDA acknowledgement when more than one region considers an engineered food product as unsafe, minimally processed animal and plant products excluded.
You can pick arbitrary points and stick them on the graph. It appears that my family are the inflation stoppers. Calm periods correspond to weddings and childbirths in my family. As the first in the line to marry a Chinese person, I have broken the rule and my daughter’s arrival has triggered a dollar collapse.
The moon gods have spoken in the tea leaves and we have lost the Mandate of Heaven.
I'm trying to read this and not feel like an idiot.
Can someone explain to me how post-covid is considered one of the 4 episodes?
it looks to me that the dips at 1933-1936 or 1956-1958 are much more significant - are these just "regular" inflation? Are we ignoring these because we can't tie them to some specific current event?
Another way to frame this is that during inflationary episodes, debt became easier to repay.
My parents bought a house in the 1970s. Because of the inflation that occurred during that time, incomes and expenses rose, yet long-term debt obligations such as fixed mortgages remained unchanged; their mortgage payment was the same in year 30 as in year 1.
I guess another way to say it is that during an inflationary period, the people who HAVE money suffer the loss of its purchasing power. But the people who OWE money benefit from the dollar not being what it used to be.
The most notable anomalous event if you zoom back to more like 1814 instead of 1914 is that ever since the US completely decoupled from the gold standard, it switched into purely inflationary mode rather than often bouncing back. From the 1800-1900 pretty much the entire time was spent at worst 1/2 to 2x the average value. Far less variance than after the introduction of federal reserve and taking off the gold standard, where purchasing power was destroyed to something like <1/10th of the century average.
Why don't they refer to the 3rd 'episode' as Vietnam - since the timeline lines up pretty nicely with that downward slope (and it's more than just the 70's as is highlighted in the article)?
If seeing this graph has taught me anything it's that war is hell on many levels - including economically.
This article also doesn't seem to account for the median price of a single family home.
Currency purchasing power isn't a very meaningful metric. It should be accompanied by the level of wages, at least. Besides, you can't compare any consumer data of the pre-tech/pre-plastic period before the 50's with subsequent ones. The social and technological frames were immensely different.
263 comments
Finally the events are quite cherry-picked. It is a conclusion looking for a result, when the statistical reason for choosing those 4 events simply isn't evident when you look at the data itself. There is no mathematical rule you could apply to your dataset that would distinctly highlight those 4 periods.
You'd have nowhere to charge it. Electricity would be more expensive than gas even if you did.
You'd benefit almost nothing from the technology. There's no internet. Not much of it would work. And it wouldn't really help move you forward technologically, as it's just too advanced.
https://www.officialdata.org/us/inflation/1800?amount=1
Doing a spot check, this means $1 in in 1913 is equivalent to roughly $32.83 today.
And yes, earlier variations are more impactful because compounding.
I will say that a better representation would be a logarithm of the inverse. The problem with doing it this way is that later changes look very small. $1.00 to $.99 is the same y-axis delta as $0.05 to $0.04 but the latter is very different.
#1 creates oversupply of dollars and #2 and #3 lower demand. This study supports the idea that wars can indeed destroy purchasing power.
If anything the data points at "inflation targeting works and is producing slow and steady inflation" rather than "inflation comes in concentrated bursts".
Because we try to figure out how things like "strengthening" and "weakening" of the dollar fit in, and we actually have policies much more intelligent than, weaking of the dollar! Collapse is imminent!
I think your chart shows the "that inflation slowly erodes purchasing power over time." That doesn't mean there aren't periods of change - if you study economic history at all you know about the Great Depression and stagflation - but for ~50 years it's been pretty well managed.
> Instead, $100 in 1914 is worth $3.05 today.
Doesn't that mean $3.05 in 1914 us worth $100 today?
> The Great Inflation of 1968–1982 alone accounts for 30.2% of all cumulative purchasing power destruction since 1914 — more than WWI and WWII combined. During this 15-year period, the CPI rose from 34.1 to 97.7, nearly tripling the price level.
In 1971, the United States ended the convertibility of the US dollar to gold, effectively bringing the Bretton Woods system to an end and rendering the dollar a fiat currency.
This allowed for the global reserve currency to float which allowed for global credit expansion at the cost of the dollar value but with the benefit of more overall dollars (monetary velocity increasing)
This is what politicians want because it makes the dollar printing machine the most powerful thing, hence why everyone hung on the fedchair words every few months.
So the USD is already hyperinflated but the price relative to other currencies is still high.
Once that price collapses (and it eventually will and increasingly soon) the entire US will look like the rust belt.
- Spin down the federal reserve, establish a US bank and adjust the self-loans against the future into a solid repayment plan at a minimal interest rate.
- Reestablished precious metal backing to core currencies (gold, silver, etc.)
- Establish constitutional amendment establishing non-living entities and restricting speech rights as such. If a CEO wants to donate personal funds, cool, no corporate backing to political organizations full-stop.
- Strong protections and some spending in favor of domestic security and production.
- Drop subsidy spending for GMO commodity foods and byproducts. Eliminate GRAS protections against any "food" that didn't exist in the US food supply before 1880. FDA acknowledgement when more than one region considers an engineered food product as unsafe, minimally processed animal and plant products excluded.
The moon gods have spoken in the tea leaves and we have lost the Mandate of Heaven.
Can someone explain to me how post-covid is considered one of the 4 episodes?
it looks to me that the dips at 1933-1936 or 1956-1958 are much more significant - are these just "regular" inflation? Are we ignoring these because we can't tie them to some specific current event?
My parents bought a house in the 1970s. Because of the inflation that occurred during that time, incomes and expenses rose, yet long-term debt obligations such as fixed mortgages remained unchanged; their mortgage payment was the same in year 30 as in year 1.
I guess another way to say it is that during an inflationary period, the people who HAVE money suffer the loss of its purchasing power. But the people who OWE money benefit from the dollar not being what it used to be.
If seeing this graph has taught me anything it's that war is hell on many levels - including economically.
This article also doesn't seem to account for the median price of a single family home.
https://wtfhappenedin1971.com/
https://wtfhappened2012.com/