Thursday, March 19, 2015


History's details are excuses, not explanations.

Source: 4dtraveler
There are 11 labels on the graph above, each with an arrow pointing to a moment in history. Only one of those 11 is followed by a definite uptrend, only the crash of 1929. All the rest are followed by declines in the dollar's value. In other words, it hardly matters what happens; the dollar's value falls anyway.

A lot of people look at details like those eleven. I don't. If all the different details, ten out of eleven, all have the same apparent effect on the dollar, then really those details are of little consequence. There must be something else -- one abiding factor -- that is responsible for the dollar's decline.

Oh, and did you notice? The first of those arrows points to "Federal Reserve Established". But that first arrow points to a spot well down the slope from the high point of the dollar's value on that graph. So clearly, we have to say that the decline of the dollar was well under way before the Federal Reserve was created.

One abiding factor. Not the Federal Reserve.


Greg said...

I hate these "decline of the dollar" discussions Art.

It puts the focus of the discussion in the wrong place I think. The dollar is a tool not a thing to hold and be saved.

Can anyone really argue that we were "better off" in whatever decade we choose to use as the starting point for a 100% dollar? Look at everything we've created this last century and the number of people who have gained access to it throughout the world.

What could you get for that "strong" dollar back in the early twentieth century? A car that went 40 mph and rode on pothole filled roads, a visit to the doctor where he'd likely tell you he couldn't do anything of that serious condition you'd just contracted, a comfortable nights sleep in the summer if you had an unseasonably cool night?

I just find most discussions of dollar decline to be totally devoid of context.

Besides, if you had taken your dollar back in the teens and kept in 30yr Treasuries the entire time it would have doubled at least six times, that eases some of the erosion you graphed.

The Arthurian said...

"The dollar is a tool not a thing to hold and be saved."

Well that's interesting. What kind of tool? Or, what are we supposed to do with dollars, in your view?

Greg said...

Its a tool to facilitate transactions, when it gets saved or hoarded things slow down. That doesn't mean one shouldn't save at all but one should still understand what types of things need to happen in order to offset saving.

I think this is why gold or other commodity standards are misguided, they put the emphasis on the acquiring the dollar rather than using the dollar.