I may have mentioned discussing what a dollar is with some of my students. Here is more information I'll have to add to their intellectual coffers:
Since our dollar is tied to nothing but Federal whim, what does that mean to it's purchasing power? A dollar that today will buy a small coffee from the local shop... what will it buy next year?
The work put into getting that dollar today, that won't change a bit. If it took 10 minutes of labor to earn a dollar ($6 an hour), the proud new owner of the buck will never get that labor back. Does that mean the freshly minted crisp new dollar bill will still buy it's sweaty owner a cup of coffee tomorrow? How about next month?
No.... the time and labor (wealth) invested to earn a dollar (token) are gone. In exchange a working person gets tokens of wealth that come with a problem. Not a hidden problem, as it's right out there for all to see, except most people don't bother looking, and especially don't bother thinking about it.
Since our currency is pegged to nothing, it can be worth anything.... or nothing. Perhaps a visual aid is in order......
This graph shows the decline of a dollars 'purchasing power' over the last 100 years. Here we see that what a hard earned buck would buy the owner in 1900 is more than ten times what it would buy in 2005. I was unable to find a short term graph showing the data over the last few years, but one can assume the logic behind the data will hold true. In that case, allow me to introduce another graph.
This graph (found here) shows the single biggest reason for this loss of value in the dollar. The Federal government keeps making more of them.
The government creates money, but does not earn it. They can't create value... that is made by people working, devising, and striving. That labor (mind and body) is the real wealth, and the paper dollar bill is simply a token to barter, store, and 'save' the wealth.
When the government creates currency from thin air and spends it on the open market they debase the currency that is already in circulation, making it worth less. In effect, they are transferring the value of the money, the wealth it represents, from those who earned it to those who simply printed it.
Note the chart above, and it's deadly information. As the money supply (created from thin air by the government) goes up, the value of each dollar goes down. Wealth is transferred from those who earned it to those who own the printing presses. Again, I have not been able to find a complete chart for the last few months, but .... One more image, and a sobering one, from the Federal Reserve bank of St Louis...
Note here that the monetary base (dollars in circulation) has effectively doubled in the recently. There is no escaping the logic of this.... if the pile of cash chasing an apple is doubled, it does not mean there are more apples, but that each apple will cost twice as much, because each dollar is now worth half what it was.
Each 'Quantitative Easing' the federal reserve banking system initiates makes the potential of this problem worse. At the moment, it appears banks are simply sitting on the cash as reserves, or it's being shipped overseas to pay international debts (China holds roughly two trillion US dollars in it's reserves). When this money joins the market place, the results will be..... interesting.
Think about it.