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Tuesday, January 18, 2011

Chinese, the dollar and inflation

The Chinese announced last Tuesday they are reducing their exposure to the the US dollar. Since November, China has visibly edged away from the dollar in favor a new world system which has yet to emerge, but doubtless will feature the yuan.

For the last 13 years, and especially in the last 24 months, the American government has beaten us up with a steady erosion of the international value of our currency. The Chinese are wisely stepping out of the way.

Inflation is a US government approved tax on your purchasing power. Inflation is not caused by grocers, banks or workers getting more than they deserve (or similar nonsense).

Inflation is not caused by cheap Chinese labor or NAFTA. It is a dilution of your purchasing power by government fiat. The government uses the Federal Reserve to print dollars, creating fake currency out of thin air.

Adjusted for inflation, the DOW Industrial average has increased only 2% since 2000.

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Examples of inflation since 1998
  • An average house cost $129,000. Now it’s $172,000 (33% increase)…and that’s after the real estate market crashed.
  • A gallon of gasoline was $1.15 and now it’s at $3.15 - 274% higher, almost three times what it was.
  • A loaf of bread was $1.26. It’s now $2.79 (121% higher).
  • A dozen eggs cost 88 cents, now $2.89 (228% higher).
  • A postage stamp was 32 cents - in 2011, 44 cents (38% higher).
What can we thank for the higher prices?

Well, as strange as it sounds in this current post-recession, still deflationary environment, inflation stole your dollar’s value over the last decade.

Inflation – especially over the years – is so subtle that most people don’t notice.

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Against the US dollar, 1998 – Present Day
  • Japanese yen: Up 57%
  • Aussie dollar: Up 51.9%
  • Swiss franc: Up 51.4%
  • Canadian dollar: Up 44%
  • New Zealand dollar: Up 31%
  • Norwegian krone: Up 26%
  • Euro: Up 22%
  • Swedish krona: Up 19%
Technical data adapted from Sean Hyman at Currency Cross Trader

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