Purchasing Power of the Dollar
Over the years since the inception of the dollar there has been a tremendous deal of decline in value. How much has the purchasing power of the dollar diminished over the last century?
With the introduction of the Federal Reserve specifically back in 1913, you can see today the dollar has lost more than 90 percent of its value already. Today, $1 is going to buy you exceedingly less than it would more than 107 years ago.
The better understand that decline in purchasing power you can view the US Bureau of Labor Statistics CPI Inflation Calculator and see the general steady decline over the years. You can also see how inflation impacts the dollar and how it changes via the Consumer Price Index (CPI), and how the purchasing power will continue to dwindle.
- In 1913, $100 would be valued at only about $3.76 today
The purchasing power has not only gone down, it did have a short period of time of going up, but it was never able to get back to its original 1913 value that it had. The US dollar’s purchasing power has always been one of the best in the world, but that could soon be changing. Inflation is impacting all aspects of the economy, but some still believe that inflation is too low.
What has $100 been worth in 1913, and over the decades?
- 1913 you had $100
- 1923 it would have been about $57.95
- 1933 about $76.27
- 1943 roughly $57.29
- 1953 you would have around $37.09
- 1963 around $32.95
- 1973 it would be about $22.97
- 1983 got you about $9.93
- 1993 you have around $6.87
- 2003 close to $5.39
- 2013 about $4.27
- and 2020 roughly $3.76
So as of now in 2020, that original 1913 $100 would only be worth less than $5, meaning you could only buy that amount of goods and services at the diminished cost. When we see how life seems to be getting more expensive for the average American to live, there is no surprise as to why. With inflation and market volatility eating away at the value that people have and make, it is a constant struggle to retain that value and have any sort of good buying power. The prices will continue to rise year after year and the dollar will only get weaker in terms of purchasing power.
There is one notion which believes that when the world’s money supply outperforms economic growth, that sustained inflation is a possibility. For this reason people turn to central banks to control and manage stability in the market, but despite central banks being involved since 1913, you can see that the story of the U.S. dollar isn’t a happy one. Getting closer to the day of losing its purchasing power of 100 percent in value, which so far it has lost more than 90 percent, is nothing to scoff at.
Recessions and various economic situations can impact inflation and the CPI. For any recession for example, the CPI is known to fall, or it could increase at a much slower rate because of the decreased demand in the economy for certain goods and services. This data can give us a good idea of how inflation interacts with the CPI and together how our purchasing power has been impacted and diluted over the years.
As an example, I like to go back to 1971 when gold was fixed to the dollar.
With gold being worth $35 an ounce at the time, gas was at .26 cents per gallon ($35 would fill up your car for weeks), and silver being worth $1 an ounce.
Let’s say in 1971 you dug a hole in your backyard and bury an ounce of gold along with $35 dollars, and next to it you dig a separate hole and bury an ounce of silver along with $1. Fast forward to today, you decide to dig both of those holes up. Think about the numbers… in the first hole, that ounce of gold (as I’m writing this) today is worth about $1,650, and that $35 can maybe just about fill up your gas tank once. Then you dig up the second hole, silver is worth around $17 an ounce, and that $1 bill can’t even get you a half gallon of gas, let alone buy you a decent pack of chewing gum these days.
Gold, a scarce resource mined from the earth has maintained its purchasing power. While silver, an even scarcer resource, has increased in purchasing power. And that dollar, a piece of paper with no intrinsic value that the government can just print at will, has succumbed to inflation and it’s purchasing power has plummeted over the years.
This underscores why you should consider holding precious metals in your portfolio right now, and invest wisely choosing an asset that will give you Preservation, Growth, and now Income!