For those of us aging baby boomers who lived through the inflationary nightmare of the 1970s and early 1980s, what’s happening today is hardly a mystery. We’ve been down this road before, and we’ve got the receipts to prove it. We remember double-digit inflation, mortgage rates approaching 20 percent, gasoline shortages, and the increasingly desperate attempts of ordinary Americans to stay ahead of rising prices. We also remember Paul Volcker administering some very painful monetary medicine to finally bring the whole mess under control.
For those of you too young to remember, or perhaps not even born, the present situation must seem bewildering. You’re making more money than your parents did at your age, but somehow many of them managed to afford a house, two cars, and an annual vacation on one income. Today, two incomes frequently aren’t enough. You’re understandably looking for answers, and that’s exactly what I intend to provide.
The problem starts with our definition of inflation. Ask the average economist or financial commentator what inflation is, and he’ll probably tell you it’s rising consumer prices. But from the traditional Austrian School perspective, inflation is an increase in the supply of money and credit. Rising prices are merely one of its consequences, and not necessarily the first or most obvious one.
Milton Friedman famously observed that inflation is always and everywhere a monetary phenomenon. The Austrians went further, examining how newly created money works its way through the economy and who benefits from getting it first. This is commonly called the Cantillon Effect, and understanding it goes a long way toward explaining why some Americans have become fabulously wealthy while others have spent decades running faster just to stay in the same place.
When new money enters the economy through the financial system, banks and other early recipients can put it to work before its full purchasing-power effects have been felt. Financial assets and real estate can appreciate dramatically, rewarding those who already own them. Meanwhile, the average working stiff sees his rent, insurance, groceries, and other expenses climbing while his paycheck struggles to keep up. And if he’s been diligently saving money in the bank all these years, he’s likely discovered that financial responsibility doesn’t always receive the reward it deserves.
Here’s a number worth considering. When Richard Nixon closed the gold window in 1971, $100 bought what would require nearly $800 by 2025, using the government’s own Consumer Price Index. That’s roughly 87 percent of the dollar’s purchasing power gone in a little over half a century. And that’s before we start arguing about whether the CPI accurately reflects the expenses that matter most to American families.
Which brings me to something I’ve been saying for years. Inflation never really disappeared. It simply moved to a different venue.
While economists were congratulating themselves on keeping consumer price inflation under control, financial assets and real estate were experiencing extraordinary increases in nominal value. A dollar that didn’t immediately drive up the price of a loaf of bread could still help bid up the price of a house, a stock, or an apartment building. The resulting wealth effect made asset owners feel richer, while younger Americans attempting to acquire those same assets discovered that the entry price had moved further out of reach.
Of course, monetary expansion doesn’t explain every increase in asset values. Productivity, corporate earnings, demographics, and supply constraints all play their part. But measuring inflation almost exclusively through the prices of consumer goods leaves out an enormous part of the monetary story. For decades, Americans were told inflation was under control even as the price of admission to the middle class kept climbing. Something about that explanation never quite added up.
And that’s one of the principal reasons I created the ** Dollar Time Machine**. I wanted people to see what has actually happened to the purchasing power of their money, using familiar goods and services rather than the statistical abstractions economists love so much. When you can see what something cost 30, 40, or 50 years ago and compare it with today’s price, the consequences of monetary policy become considerably harder to ignore.
Now I’m taking this investigation a major step further.
My upcoming special report, The Slow Theft: 2,400 Years of Inflation and the Dollar Forecast for 2027–2031, examines the history of inflation from ancient Greece and Rome through the monetary disasters of Europe, the creation of the Federal Reserve, the abandonment of the gold standard, and the unprecedented monetary experiments of the past two decades.
One thing becomes abundantly clear when you examine 2,400 years of monetary history. Governments have an almost irresistible temptation to spend more than they collect, and when they can create money to cover the difference, they eventually do. Whether it’s a Roman emperor reducing the silver content of his coins or a modern central banker purchasing government debt with newly created money, the incentives haven’t changed very much. The technology has improved considerably, but human nature hasn’t.
And speaking of incentives, politicians have an additional reason to embrace monetary expansion. They get to spend the money today, distribute the benefits to politically favored constituencies, and leave the eventual purchasing-power losses for somebody else to worry about. It’s an arrangement that has worked remarkably well for the political class throughout history, although the same cannot always be said for the people who ultimately pay the bill.
But this report won’t simply rehash 2,400 years of monetary mismanagement. I’m going to stick my neck out and provide a specific five-year forecast for inflation and the dollar through 2031, examining the federal debt, government spending, monetary policy, and the increasingly difficult choices confronting Washington.
I’ll also examine what these developments could mean for gold, real estate, financial assets, wages, and the purchasing power of your savings. We’ll look at the most likely path forward, what could derail it, and why the next five years may prove considerably more consequential than most Americans realize. There will be some conclusions that conventional economists won’t particularly appreciate. That’s never stopped me before.
And I’m giving the entire report away for free.
All you need to do is visit the ** Dollar Time Machine** and sign up. You’ll receive access to the upcoming five-year inflation forecast, along with the historical perspective necessary to understand where the dollar has been and where it may be headed. I’ll also be publishing a companion series of articles exploring the most important findings.
If you’re approaching retirement, already retired, trying to build wealth, or simply wondering why your money doesn’t seem to go as far as it once did, this is a report you’ll want to read. The decisions you make over the next five years could have a lasting impact on your financial future. Understanding the monetary forces driving those decisions strikes me as a pretty good place to start.
After 2,400 years, you would think humanity might have learned something about the dangers of monetary debasement. Unfortunately, the people controlling the printing presses have learned a different lesson.
They’ve discovered just how profitable it can be.
The historical dollar comparison is verified against Federal Reserve Bank of Minneapolis CPI data.
