The incredible shrinking dollar

What if I told you I knew of an investment that has lost 96% of its value since 1913 and those in charge planned to lose an additional 2% per year for the foreseeable future?  Would you be interested?  Unfortunately for most of us we carry around US currency in our wallets and have US currency deposited to our bank accounts.  Since 1913 when the US Federal Reserve was formed inflation has steadily devalued the US dollar in terms of purchasing power.  As the chart below shows $1 in 1913 has the equivalent purchasing power of $0.04 in 2011.

Sorry to those living on fixed incomes.  Sorry to those with incomes that don't keep up with inflation.


The US Federal Reserve has a dual mandate: maximum employment and price stability.  We have a track record going back to 1913 that shows very clearly that stability of the purchasing power of the US dollar has not been achieved.

Could you image a money manager in the private sector with that kind of abysmal track record?  Not only would the management team have been fired long ago, investors would have run for the exits.  Yet somehow the US Federal Reserve remains in charge of our money?

Unfortunately the news just gets worse: in the July 13, 2011 Monetary Report to Congress the Fed states they see "1.7 to 2.0 percent for the inflation rate" over the long term and this rate is "consistent with the Committee's mandate."  So not only do we have a track record of the declining purchasing power of the dollar we are told the plan is for this to continue.  Simply stunning. To add insult to injury 2011 inflation results will exceed 2% by a large margin (December and thus 2011 full year inflation is not yet available).


Sources
All data and charts above derived from Consumer Price Index (CPI) from the US Bureau of Labor Statistics (BLS).  Direct link to the All Items and Annual Percent Changes from 1913 to Present report.  Note: the BLS revises data, figures and tables above were taken from the report dated 12/16/2011.  2011 full year inflation estimated based on actual results through November 2011.