Part 2 in a series of stories about getting reacquainted with living in the United States after three years abroad.
I believed the reports from the Bureau of Labor Statistics that the U.S. inflation rate has held at around 1-2% for the past five years. However, I noticed from our trip abroad to Sicily in 2012 that one U.S. dollar was worth about .80 Euros, and on our most recent trip through Europe in 2014 one dollar was worth about .72 Euros. That is a 10% loss of the purchase power of my dollars in two years. Something is not right.
Shortly after our return to the U.S., I had a conversation with a friend of mine who was trained as a financial advisor at Morgan-Stanley. I told him I noticed a discrepancy between what my dollars were worth and what our government was telling me about the inflation rate. I mentioned also that my wife and I both were experiencing severe sticker shock¹ at the price of basic…
View original post 679 more words
Interesting post. How does the flooding of the market with dollars factor in? Isn’t the flooding of dollars also reduce it’s buying power?
As it was explained to me, Keith, most of the dollars printed do not flood the market. Banking laws require that a percentage of a banks assets must be held in reserve. The largest amounts of dollars are part of the Federal Reserve. Large amounts of dollars are also held by the multinational banks, and proportionally less amounts are held by the many regional and local banks. While the Treasury may be printing billions of dollars, that figure is small compared to the collective assets of the banks which are in the trillions.
What the market is flooded with is credit supported by those reserves. While the FDIC steps in should large numbers of account holders demand their funds, they only insure bank accounts, not loans. BTW – There is speculation by some analysts that banks are now excessively issuing subprime loans for automobiles.
Thank you for your astute questions. I hope I addressed them even though I am no expert. – Mike
I think you made more sense than the experts I hear all the time. 🙂
This is a serious matter, when our dollars are of less value across other countries, Mike! I did not know that! Used to be worth more! I know this, from my Mexican, Canadian and Spanish trips. I could ‘buy’ more with my dollars and I think the exchange was more, too. This was in the 70’s and 80’s… I guess we need to figure out how to make this better, but not sure if changing the way the government works, with projects and war zones being helped, if we can discontinue what we already have on the budget….Interesting and thanks for this information, Mike! Hugs, Robin
I am always saddened when our country’s values go down, including monetary… Thanks for the enlightenment, Mike!
I always appreciate your comments, Robin. Thank you for your reflections on this story. Now if I can only get myself to start writing again now that we are back in our homeland. 🙂 – Mike