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The incredible shrinking dollar
Market Watch ^ | 1/19/2011 | IRWIN KELLNER

Posted on 01/19/2011 9:57:08 AM PST by FromLori

Spending power erodes, and Fed may do more damage

Guess what? Your pocket has been picked.

I don’t mean your wallet, or even its contents. What I am referring to is the buying power of the money it contains.

The consumer price index (CPI) tells the story. As you know, it measures the change in prices of a fixed basket of goods and services that the typical household supposedly purchases every month.

The recent trend of the CPI does not reveal much to worry about. In 2010, consumer prices rose a relatively benign 1.5%.

However, there is more to this story. For one thing, prices in the month of December alone rose a whopping 0.5%. That was the biggest monthly rise since June 2009.

And the fact that most of the rise was traceable to an 8.5% jump in energy should not ameliorate our concerns, since we all use energy just like we all consume food.

Besides food and energy, other items in the consumer’s basket went up as well, including health care, apparel and airline fares. Few items fell.

Longer term, the buck’s buying power has been shrinking for years — indeed, for decades.

In just about every year, the value of the dollar has gotten smaller, the only difference being the rate of shrinkage. In some years it was faster, while in others it was slower.

This was brought into bold relief by a study released the other day by the American Institute for Economic Research (AIER). It tracked consumer prices over the 20-year period 1990-2010.

During the past decade alone, AIER calculates that the dollar has lost a thumping 20% of its purchasing power. Since 1990, the overall loss is nearly 30%.

(Excerpt) Read more at ...

TOPICS: Business/Economy; Government; News/Current Events
KEYWORDS: devaluation; dollar; fed; inflation

1 posted on 01/19/2011 9:57:12 AM PST by FromLori
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To: FromLori


2 posted on 01/19/2011 10:09:45 AM PST by phockthis
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To: FromLori

The last two times we have been to the grocery store we have had to pull out the receipt in the car because we could not believe that little amount of products for so much money.

3 posted on 01/19/2011 10:25:21 AM PST by doodad
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To: doodad

It’s terrible how about the shrinking packages all the formerly 16 oz. cans are now 15 oz., tuna fish is now only 5-1/2 oz. A lot of my recipes that I have used for decades now have to be revamped or I have to buy 2 and all this at a time when we get next to nothing on our savings thanks to the Fed!

4 posted on 01/19/2011 10:30:13 AM PST by FromLori (FromLori">)
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To: FromLori
Just look at the values of real American money. My pre-1933 gold coins have a face value of $20. FDR then fixed the price of gold at $32/oz. when he stole the nations gold. By 1986 (I believe) the face value of an American 1 oz. coin was $50.

I marvel at these numbers when I examine my coins and get a knot in my stomach when I think of all the money I still have in worthless CD's.

5 posted on 01/19/2011 10:37:50 AM PST by Aevery_Freeman (Fear God and Government - especially when one tries to become the other!)
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To: Aevery_Freeman

I would hang onto those coins!

6 posted on 01/19/2011 10:44:52 AM PST by FromLori (FromLori">)
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To: FromLori

What I find interesting is the way individual prices have been going up. I often find that the price of an item goes from $25 to $30 in a single jump, instead of inching up from $25 to $26. Most recently, my favorite shampoo went from $.97 to $1.57 overnight. (I buy cheap shampoo for what’s left of my hair...)

7 posted on 01/19/2011 10:52:23 AM PST by Senator_Blutarski
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To: FromLori
Of course, there’re no COLAs because the CPI hasn't gone up.

I cry BS on our lying government! They've been manipulating every index in existence to disguise the effects of their treason. Prices on everything are exploding because the dollar is worthless.

And all of this is because of the treason committed every day by those bungholes in DC.

8 posted on 01/19/2011 10:53:41 AM PST by DakotaGator (Weep for the lost Republic! And keep your powder dry!!)
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To: DakotaGator

I agree BS! During the carter years they took Food and Energy costs out of the CPI what kind of crap is that the two most important things we need daily.

9 posted on 01/19/2011 11:01:50 AM PST by FromLori (FromLori">)
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To: FromLori

The “headline” CPI - the All Items Consumer Price Index for All Urban Consumers (CPI-U) — INCLUDES FOOD AND ENERGY.

Food and energy components were NOT taken out of CPI-U during the Carter years, or any other years.

However, a separate indicator that excludes food and energy components is also calculated. This is often referred to as “core inflation” and it is the primary indicator used by the Federal Reserve for setting monetary policy. Investors are interested in this number because they must always predict what the Fed is going to do.

The Bureau of Labor Statistics also calculates an index for all items consumed by urban wage earners and clerical workers, CPI-W, which closely tracks CPI-U and also includes food and energy. CPI-W is used to escalate social security, Federal pension, and other welfare benefits. Inflation-indexed securities are indexed to CPI-U. The core inflation rate is NOT used for this purpose.

If you doubt this, see

The CPI-U has been low the past two years because energy prices fell sharply after the $150 spike in crude prices and housing costs have busted since the financial meltdown.

There were changes during the Reagan Administration that are subjects of legimate criticism. The first is the “chain-weighting” of the various CPI components to reflect the fact that consumers buy less of a good when prices go up and more of a good when prices go down. The chain-weighted inflation rate is generally lower than fixed-weight inflation rate. The second is the “rental equivalence” basis for evaluating inflation of housing costs. The “rental equivalence” method can work either way, but lately has significantly reduced the the calculation of CPI-U.

10 posted on 01/19/2011 11:38:39 AM PST by Skepolitic
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To: FromLori
In addition to separating out the cost of food and energy from core inflation, there are several biases understating inflation that have been built into the CPI since the 1980's.

Originally the CPI was designed to measure the cost of a fixed basket of goods, i.e. comparing apple to apples. The rationale behind this is to be able to accurately measure return on investment in relation to inflation, and to be able to accurately measure how tones changes in income stand in relation to inflation.

In the early 1990’s the ‘substitution effect’ was introduced. For example if the price of steak went up ‘too much’ the price of hamburger was substituted. The CPI morphed from the cost of maintaining a certain standard of living to the cost of maintaining a declining standard of living.

Straight arithmetic weighting of the CPI components was shifted to a geometric weighting. Lower weighting is given to those CPI components that are rising in price, and a higher weighting to those items dropping in price.

Hedonics was introduced. This is my personal favorite. Hedonics adjusts the prices of goods for the increased pleasure the consumer derives from modifications to those goods, e.g. if you pay more for gas because of federally mandated additives, the additional cost does not count toward the CPI because of your increased pleasure in breathing ‘cleaner air’.

The CPI if were calculated the same way as in Reagan's Day:

11 posted on 01/19/2011 11:45:21 AM PST by algernonpj (He who pays the piper . . .)
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To: Skepolitic

I should have said taken out of reporting they do not count the cost of food or energy when reporting on inflation it was changed during Carters years.

12 posted on 01/19/2011 11:47:36 AM PST by FromLori (FromLori">)
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To: Senator_Blutarski
What I find interesting is the way individual prices have been going up. I often find that the price of an item goes from $25 to $30 in a single jump, instead of inching up from $25 to $26.

Inflation in foodstuffs is really starting to escalate. I find the same thing as you in that department. Canned goods which used to inch up 2-5c at a time now have increases in the 10-15c range. In between pauses, the packages shrink.

13 posted on 01/19/2011 1:26:45 PM PST by Oatka ("A society of sheep must in time beget a government of wolves." –Bertrand de Jouvenel)
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To: FromLori


Time to revisit devaluation. No one believes Geithner and his pronouncements last fall ...

In Nov 2010 Geithner says ... well, I won’t “intentionally” devalue the dollar (but it may happen just the same) ...

Nobody believes this guy, who has been trained to keep secrets and lie very effectively:
- GM Chapter 11 ( )
- AIG ( )
- New World Currency ( )

Plus, you cannot spring a devaluation if everyone is expecting it shortly. Hence, now is the best time for him to spring it ... right in the middle of Mid East chaos and US financial chaos. A new reserve currency must surely be around the corner.

14 posted on 02/24/2011 8:55:45 AM PST by Nobel_1 (bring on the Patriots!)
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To: Nobel_1
Thanks for those links. Geithner has told countries to de-peg from the dollar and he has said they won't quit spending. He has ties to soros/kissinger/brzezinski btw.

US will not make drastic budget cuts, Geithner tells Davos

15 posted on 02/24/2011 9:18:16 AM PST by FromLori (FromLori">)
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To: FromLori

Your post #23 at deserves a PING ... their goal is to collapse the dollar

One way or another

16 posted on 02/24/2011 9:22:50 AM PST by Nobel_1 (bring on the Patriots!)
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To: Nobel_1
Why high oil prices could knock down the U.S. dollar

Speaking of collapsing the dollar one could easily come to the conclusion that the middle east going up in flames was intentional since obama was warned about food inflation but rather then stop spending the fed is monetizing our debt and at the same time that continued printing is also being named as a cause of the inflation.

17 posted on 02/24/2011 10:54:34 AM PST by FromLori (FromLori">)
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