The Changing Dollar

Inflation

... the change most know at least a little about

1) CPI (Consumer Price Index) values are derived from the US Bureau of Economic Analysis, and are likely understated and therefore under estimate the real and true inflation rate.
Year	Dollar value adjusted for CPI¹	Average new home²
1905	$1.00	$3,000
1946	$0.50	$10,500
1973	$0.25	$31,000
1982	$0.10	$84,000
2005	$0.05	$240,000
2) Not adjusted for decreasing land size or increasing average square footage or amenities growth. Source data from various government and census publications.

The international dollar index
...the one very few know much about
Year	Dollar Index³ value	How many foreign widgets you could buy with the same dollar⁴
1971	$1.20	1.00
1980	$0.86	0.71
1985	$1.63	1.36
1992	$0.80	0.66
2001	$1.18	1.01
2005	$0.82	0.68
NOTE: one of the primary purposes of the Federal Reserve System is to provide a stable currency... no comment on how successful they've been.
3) US Dollar Index - the value of the dollar when expressed as a combination of other important currencies.

4) An attempt to show how much the dollar varied for a U.S. citizen vacationing abroad, or for the same item being imported into the U.S. Another way to look at the changes is how much the dollar is worth in world purchasing power.

So... the next time you're thinking about an investment, do remember to take the ruler by which you're measuring your success into account to avoid unpleasant surprises. If the US dollar based investment goes up 20% but the dollar index goes down 25%, you've lost about 5% in world purchasing power. In a rapidly changing economic world, it's important to measure economic success against world wide and more stable measures.

Please note that this data is raw truth, and if you're like many people it won't be pleasant to read or think about.

Here's two examples, note that the dollar peaked in July 2001 and almost exceeded that high again in January 2002:

Dow Jones in dollars		Dow Jones in euros


Oil in dollars		Oil in euros

Inflation is more money than goods.

If more money is created than there are products manufactured on which to spend that money, prices go up. The cause of inflation is made lots more complex than that by various folk, but its the basic truth and senior datum about prices.
Deflation is the reverse, less money created than there are goods available to buy with it.
The institutions that are allowed to create money include the Federal Reserve (created in 1913, a private corporation and not part of the US government), commercial banks, etc..
If you don't believe this or disagree, that's fine - good luck to you in your investing anyhow, seriously.

The Big Mac Index

Slightly tongue in cheek, as well as useful in understanding different countries and their currency's value, is the Big Mac Index published by The Economist magazine.
From their site: "The Economist's Big Mac index seeks to make exchange-rate theory more digestible. It is arguably the world's most accurate financial indicator to be based on a fast-food item." It simply shows the cost, in U.S. dollars of a Big Mac in many countries of the world.

Here is the one from December 2004:

The Finster Dollar Index

A much more real index of the value of the US dollar (and therefore global inflation) in terms of global real goods, services, capital and labor.