The Buying Power of U.S. Dollar Over Past 100 Years – with CHARTS
by John-Henry Hill, M.D., Ph.D.
April 6, 2017
As a teenager I recall filling up my Dad’s car’s gas tank for 29 cents per gallon. (It used to bother me that his car, with a 390 cubic inch engine, required “high-test” gasoline, instead of “regular” at 25 cents per gallon. But with a heavy-duty clutch, manual 4-speed and everything else my Dad could find to “soup in up”, it was the fastest and most powerful car I have ever driven in my life. It was a blast!!)
Having worked in one of his supermarkets, I used to stick the price labels on all the products. A six-pack of candy bars (Hersheys chocolate, Snickers, Mars, etc.) cost 25 cents, while 1 individual candy bar costs 5 cents. A one-pound can of coffee cost 89 cents. A loaf of bread delivered fresh from the bakeries that morning costs 8 cents. But fresh bread was delivered by all the bakeries TWICE each day. So the morning batch was placed on a lower shelf as “day-old bread” and cost 3 cents. The afternoon delivery bread went to the “Fresh Bread” section at 8 cents per loaf.
Those readers guessing that I must be nearing my 90’s are way off. In fact, I recently reached “retirement age”.
The older the reader is, the more he realizes how drastically prices have risen. (I recall reading that from the 1840’s to the early 1900’s prices barely increased at all, but I can NOT verify this statement – so take it with a “grain of salt”.)
Rather that present my own research and analysis, I will present the research done by JEFF DESJARDINS (of the VISUAL CAPITALIST) as presented as excerpts from his article of April 5, 2017 titled, “The Buying Power of the U.S. Dollar Over the Last Century” Source: http://money.visualcapitalist.com/buying-power-us-dollar-century/
Caution to Reader : The figures for inflation (“Consumer-Price-Index” or CPI) are those issued by the U.S. government and, the method of calculation was revised in 1992, which many claim reduced the REAL CPI (e.g., economist John Williams of www.ShadowsStat.com .)
The Buying Power of the U.S. Dollar Over the Last Century
1.) The value of money is not static. In the short term, it may ebb and flow against other currencies on the market. In the long-term, a currency tends to lose buying power over time through inflation, and as more currency units are created.
Inflation is a result of too much money chasing too few goods – and it is often influenced by government policies, central banks, and other factors. In this short timeline of monetary history in the 20th century, we look at major events, the change in money supply, and the buying power of the U.S. dollar in each decade.
At the turn of the 20th century, the money supply was just $7 billion. Today there are literally 1,900X more dollars in existence.
While economic growth has meant we all make many more dollars today, it is still phenomenal to think that during past moments in the 20th century, a dollar could buy a pair of leather shoes or a women’s house dress.
The buying power of a dollar has changed significantly over the last century, but it’s important to recognize that it could change even faster (up or down) under the right economic circumstances.
A Short Timeline of U.S. Monetary History
After the Panic of 1907, the National Monetary Commission is established to propose legislation to regulate banking.
U.S. Money Supply: $7 billion
What $1 Could Buy: A pair of patent leather shoes.
The Federal Reserve Act is signed in 1913 by President Woodrow Wilson.
U.S. Money Supply: $13 billion
What $1 Could Buy: A woman’s house dress.
U.S. dollar bills were reduced in size by 25%, and standardized in terms of design.
The Fed starts using open market operations as a tool for monetary policy.
U.S. Money Supply: $35 billion
What $1 Could Buy: Five pounds of sugar.
To deal with deflation during the Great Depression, the United States suspends the gold standard. President Franklin D. Roosevelt signs Executive Order 6102, which criminalizes the possession of gold.
By no longer allowing gold to be legally redeemed, this removes a major constraint on the Fed, which can now control the money supply.
U.S. Money Supply: $46 billion
What $1 Could Buy: 16 cans of Campbell’s Soup
The massive deficits of World War II are almost financed entirely by the creation of new money by the Federal Reserve.
Interest rates are pegged low at the request of the Treasury.
Under Bretton-Woods, the “gold-exchange standard” is adopted.
U.S. Money Supply: $55 billion
What $1 Could Buy: 20 bottles of Coca-Cola
The Korean War starts in 1950, and inflation is at an annualized rate of 21%.
The Fed can no longer manage such low interest rates, and tells the Treasury that it can “no longer maintain the existing situation”.
U.S. Money Supply: $151 billion
What $1 Could Buy: One Mr. Potato Head
An agreement, called the Treasury-Federal Reserve Accord, is reached to establish the central bank’s independence.
By this time, U.S. dollars in circulation around the world exceeded U.S. gold reserves. Unless the situation was rectified, the country would be vulnerable to the currency equivalent of a “bank run”.
U.S. Money Supply: $211 billion
What $1 Could Buy: Two movie tickets.
In 1971, President Richard Nixon ends direct convertibility of the United States dollar to gold.
The period following the Nixon Shock is uncertain. The federal deficit doubles, stagflation hits, and the oil price skyrockets – all during the Vietnam War.
Over the decade, the dollar loses 1/3 of its value.
U.S. Money Supply: $401 billion
What $1 Could Buy: Three Morton TV dinners.
The stock market crashes in 1987 on Black Monday.
The Federal Reserve, under newly-appointed Alan Greenspan, issues the following statement:
“The Federal Reserve, consistent with its responsibilities as the nation’s central bank, affirmed today its readiness to serve as a source of liquidity to support the economic and financial system.”
The Dow would recover by 1989, with no prolonged recession occurring.
U.S. Money Supply: $1,560 billion
What $1 Could Buy: One bottle of Heinz Ketchup.
This decade is generally considered to be a time of declining inflation and the longest peacetime economic expansion in U.S. history.
During this decade, many improvements are made to U.S. paper currency to prevent counterfeiting. Microprinting, security thread, and other features are used.
U.S. Money Supply: $3,277 billion
What $1 Could Buy: One gallon of milk.
After the Dotcom crash, the Fed drops interest rates to near all-time lows.
In 2008, the Financial Crisis hits and the Fed begins “quantitative easing”. Later, this would be known as QE1.
U.S. Money Supply: $4,917 billion
What $1 Could Buy: One Wendy’s hamburger.
After QE1, the Fed holds $2.1 trillion of bank debt, mortgage-backed securities, and Treasury notes. Shortly after, QE2 starts.
In 2012, it’s time for QE3.
Purchases were halted in October 2014 after accumulating $4.5 trillion in assets.
U.S. Money Supply: $13,291 billion
What $1 Could Buy: One song from iTunes.
A Few Extra Charts
Cumulative Inflation since 1913
by Tim McMahon
June 18, 2015
How Much Inflation have we had since 1913?
Just like compound interest compound inflation grows faster and faster. The average annual inflation since 1913 is “only” 3.24%. See Average Annual Inflation Rates by Decade
But as you can see from the chart above compounding something for almost 100 years at 3.24% will result in over 2000% inflation. The Consumer Price index (CPI-U) for January 1913 was 9.8. The CPI-U for September 2013 was 234.149. This means that something that cost $9.80 in January of 1913 would cost $2, 34.15 today! [June 2015]
HOWEVER, just as Dr. John Williams ( www.ShadowStats.com ), using the pre-1992 formula to calculate the “real” CPI, even U.S. government-based web sites yield different results.
The web site http://www.usinflationcalculator.com/ yields the same figure that the “Cumulative Inflation” chart immediately above.
From “Cumulative Inflation” chart (above): This means that something that cost $9.80 in January of 1913 would cost $234.15 today! [June 2015]
From www.usinflationcalculator.com/ web site: something that cost $9.80 in January of 1913 would cost $234.15 today! [June 2015]
Again Caution to Reader : The figures for inflation (“Cost-of-Living Increases” or CPI or “Consumer Price Index”) are those issued by the U.S. government and, the method of calculation was revised in 1992, which many claim reduced the REAL CPI (e.g., economist John Williams of www.ShadowsStat.com .) As Dr. Williams has illustrated, the government – through it flawed methodology – systematically UNDERESTIMATES the REAL “Consumer-Price-Index” (CPI) or what we call the “Inflation Rate”
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