Trust Me, It Ain’t Just You
The simple fact is the rules of money changed in 1971. On August 15, 1971, President Richard Nixon took to the airwaves and announced the temporary suspension of the convertibility of the US dollar to gold. At that moment the dollar no longer fit the true definition of “money.” From that point on, the US dollar would be considered a currency. The very significant difference is that currencies are designed to lose value (aka purchasing power). Those aware of this significance are able to prosper from it, while those that are not become victims of it.
An example of purchasing power is like a balloon filled with air. As long as there is no means for the air to escape, the balloon will stay filled indefinitely. Big balloon equals happy child. But as any kid – or grown kid – that’s ever set a balloon on the dresser knows, eventually the balloon deflates. In this example, the air represents purchasing power. Currencies are designed to lose air (purchasing power) slowly over time.
Let’s look at this in real terms. The cost to purchase the median new US home in 1971 was $25,200. (Keep that in mind: The cost of a median BRAND NEW house was $25,200.) Let’s demonstrate the effects of the loss of purchasing power. In 2010, the median cost of a new house was $221,800, according to the US Census. Did you catch what happened there? The amount of money that used to purchase a brand new median house forty years ago, $25,200, now only buys you approximately 11% of a brand new median house today. That’s a loss in purchasing power of over 88%! Putting it in another light, if a person saved $25,200 in a bank account, considering no interest payments, more than 88% of its purchasing power has been destroyed. That’s a huge cost of not knowing the difference between money and a currency.
Now for the real kicker. As the following chart from the Economic Policy Institute shows, from 1979 to 2013, workers’ wages have remained essentially the same, despite the continued growth in worker productivity. Put plainly, worker pay has not increased along with productivity over the past few decades. As the cost of goods and services skyrocket, wages in nominal terms, remain virtually stagnant. Someone is getting very rich; it’s just not the workers. So the question is this: Can you afford the lifestyle you want by playing by the old rules of money (e.g., having only a job as a source of income)? Think about it.
