America’s long-term challenge #3: destruction of the currency, by Simon Black

Inflation is a thief so subtle that most people have no idea they’re getting robbed. From Simon Black at sovereignman.com:

On April 2, 1792, George Washington signed into law what’s commonly referred to as the Mint and Coinage Act.

It was one of the first major pieces of legislation in the young country’s history… and it was an important one, because it formally created the United States dollar.

Under the Act, the US dollar was defined as a particular amount of copper, silver, or gold. It wasn’t just a piece of paper.

A $10 “eagle” coin, for example, was 16.04 grams of pure gold, whereas a 1 cent coin was 17.1 grams of copper.

The ratios between gold, silver, and copper were all fixed back then.

But if we apply today’s gold price of $1292 per troy ounce, we can see that the current value of the original dollar as defined by the Mint and Coinage Act of 1792 is roughly $66.75.

In other words, the dollar has lost 98.5% of its value since 1792.

What’s incredible about this constant, steady destruction of the currency is how subtle it is.

Few people seem to notice, because modern day central bankers try to “manage” inflation between 2% to 3% per year.

2% to 3% per year is pretty trivial. But it happens again the next year. And the year after that. And the year after that.

After a decade or so, it really starts to add up.

But there’s an important, other side of the equation: income.

Costs are clearly rising. And it’s fair to say that incomes have been rising too. But which one has risen more?

In 1982, back when I was a toddler, the price of a Ford Mustang was $6,572. Today the cheapest Mustang starts at $25,680 according to Ford’s website.

So a Mustang today is around 4x as expensive as it was 36 years ago.

US Labor Department data from 1982 shows that average earnings were $309 per week, or $16,086 per year. That was enough to buy 2.45 Mustangs.

Today’s earnings are $881 per week, or $45,812 per year. That’s only enough to buy 1.78 Mustangs.

So when denominated in Ford Mustangs, people’s incomes have fallen 27.3% since 1982.

To continue reading: America’s long-term challenge #3: destruction of the currency

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