Over the past few years, a common perception has emerged that asset values are consistently climbing. We frequently hear about record highs for indices like the S&P 500, increasing property values, and the strong performance of precious metals. This often creates the impression that individual earnings are also on an upward trajectory, reflecting a period of prosperity.
However, a closer examination reveals a more nuanced and concerning picture regarding the actual value of the U.S. dollar. Since October 2018, the dollar's purchasing power has eroded substantially, with estimates ranging from a 37% to a 66% reduction, depending on the monetary supply metric used. Traditional consumer price index (CPI) measurements often fall short in reflecting the full scope of this monetary devaluation, as they primarily focus on consumption costs rather than the broader expansion of the money supply. This discrepancy makes CPI an inadequate tool for investors seeking an accurate measure of economic deflators.
The real implications of this debasement are evident when looking at median weekly earnings and nominal GDP. Despite a 37.5% nominal increase in median usual weekly earnings since late 2018, their value, when adjusted for the expanded money supply, has actually fallen by 12.6% (M2-adjusted) and a staggering 52.7% (True M1-adjusted). Similarly, while nominal GDP has shown a 52.3% growth in the same period, the real, money-supply-adjusted figures indicate a contraction of 3.2% (M2-adjusted) and 47.6% (True M1-adjusted). Furthermore, technical indicators suggest a continued weakening of the dollar, aligning with trends observed in the expanding money supply.
This ongoing decline in the dollar's real value underscores the critical importance of a robust and stable currency for economic well-being. It highlights how hidden inflationary pressures can diminish the financial security of individuals and distort the true performance of an economy, making it essential for policymakers to prioritize measures that preserve the currency's integrity and protect citizens' purchasing power.
