Saturday, July 2, 2011

An Argument I Don't Understand

Peter Treadway:
The US is no virgin here. The US has legally defaulted twice, the first time when the gold clause was eliminated from debt obligations in 1934 and in 1971 when President Nixon refused to honor the Bretton Woods rule that the US sell its gold to foreign nations at $35 per ounce. And a dollar in 2010 was worth 4.6 cents as compared with $1.00 in 1914 (see mykindred.com/cloud/TX/Documents/dollar/). In 1914 the traditional near- zero-inflation gold standard was jettisoned and the Federal Reserve was established.
I don't understand what the point is about the dollar being worth 4.6 cents as compared to 1914.  The only income figure I can find for 1914 is that the average salary was $627 a year.  That would compute to $13,630 per year using the 4.6 cents number.  If the dollar was still worth a dollar, and we were making $627 per year, would we be better off than we are now.  I know wages could grow because of greater productivity, but if your earnings keep up with inflation, and your assets grow in value because of inflation, what is the major concern with inflation?  It is only when you own bonds or hold other peoples debts when inflation attacks your holdings.  I think right now, we could use some inflation, if it actually went into wages.

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