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Quote On Purchasing Power

7 December 2010 One Comment

The words “deflation” and “inflation” are so loaded nowadays that I try to substitute “purchasing power” whenever possible.  Conceptually, we tend to lump all sorts of things into words which may or may not actually be related. So we have to separate asset deflation/inflation from resource/currency prices.

One way to understand this is to measure everything in terms of what an hour of work can buy, and how much real goods an asset can buy. If you sold your house in 1995, how many barrels of oil could you have bought? How about now?

How many hours of labor did it take in 1975 to buy health insurance? How about now?

This sort of analysis helps us understand that the average household has seen purchasing power stagnate or decline for 35 years, and that capital has seen its purchasing power rise. The Great Housing/Credit Bubble seemed to offer households a chance to “catch up,” and perhaps the lucky few who sold at the top and have been renting since did restore their lost purchasing power. But most households have seen their wealth decline.  [ZeroHedge]

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