Monday, October 6, 2008

How much is a dollar really worth? How much are you really making?

Quickly and off topic a bit, but this has to be said...

What is lost in all this brouhaha about bailouts, criminal banks and CEO's who, while crying crocodile tears, take home staggering amount of money.

As an example, one among many, lets take a peek at the BBC article about Mr. Richard Fuld, ex CEO of Lehman Bros.

The head of failed US investment bank Lehman Brothers has told Congress that he took home about $300m in pay and bonuses over the past eight years.

Richard Fuld, whose firm went bankrupt last month, made the statement during testimony before the House Oversight and Government Reform Committee.


So what happened at the Congress' hearing of Mr. Fuld?

Turning to Mr Fuld, Mr Waxman asked whether it was true he had received $480m (£276.2m) in pay and bonuses since 2000 - and whether this figure was fair.

Mr Fuld replied that the correct total was about $300m (£172.6m).


Mr Waxman also criticised Mr Fuld for requesting multi-million dollar bonuses for departing executives just days before last month's collapse.

"In other words," he added, "even as Mr Fuld was pleading with [Treasury] Secretary [Henry] Paulson for a federal rescue, Lehman continued to squander millions on executive compensation."


Even as the company was going down, even as they mewled and blabbed and begged the government for money, the priority was to take care of the good old boys network.

Damn the company, damn the shareholders, fuck America - but the company executives MUST get their millions!

Mr Fuld said he took "full responsibility for the decisions that I made and for the actions that I took" and defended his actions as "prudent and appropriate" based on information he had at the time.

"I feel horrible about what happened," he added.


Are you being raped in prison right now Mr. Fuld?

No?

Then you don't feel terrible.

And speaking of money, lets discover how much a dollar is really worth.

You do know what inflation is, right? (if not, google that word).

An old article of mine, from December 26, 2007, American Goy on Why American $ is worth less and less.

USA owes a lot of money. The war in Iraq (and Afghanistan) is costing a shitload of money (5 billion of dollars per month, to be exact).
USA Today: Cost of War
And to finance this war, the US government is heavily borrowing money from other nations and banks. Now, what is the dream of every American who is in debt right now?

That's right - to not be in debt... Or at least to be LESS in debt.

Now imagine, Joe (and Jane) Schmoe American, that you have heavily overpaid for a War in Iraq errr I mean Christmas Shopping. You are now 5 [haha - boy was I low balling here -AG] billion in debt this month errr sorry I mean $5,000 in debt. And the interest will grow on that amount.

What to do? WHAT to do?
It is simple. Talk to your significant other and kids, and just make the debt less. It is simple - just make the $5,000 worth much less, say, $3000. There, now it is easier to pay off. However, you do not want to make your money worthless - after all, that would mean the next month's paycheck you get from your work will be 0. That would be bad (I know we Americans are bad at math, but being paid nothing for your work is generally not cool).

That is how the government of USA operates. Since USA is now incredibly in debt, why not make the debt less. It is simple to do - just sink the dollar! Make it monopoly money!


I wrote then another triumphant article proclaiming my greatness and, puffing up with pride and barely containing the raging ego inside me and holding it in check (just), I wrote Why the dollar is monopoly money - the proof.

Catchy title, n'est ce pas?

I quoted the great (snicker) Bernanke, off the November 21, 2002 FED webpage:

"In brief, the reason is that people know that inflation erodes the real value of the government's debt and, therefore, that it is in the interest of the government to create some inflation."


See? I was right even then (said in Rush Limbaugh voice; please pass me some oxycontin). Inflation is good for the government when it has mucho debt.

When the government is in debt, it is a good policy to make the money worth less and less. So for a simple example - when you are in debt, and you owe $1000, it is really cool if in a few years that $1000 is worth less and less. While before (say, in the 1980's) $10,000 was the price of a pretty decent car, now it is... not.

Let me explain it in old AmericanGoy style, from the article:
The more debt a government has, the more inflation is desired, and the dollar becomes monopoly money. It is in the interest of the USA government to make the dollar worth less and less because USA has so much debt. It is that simple!



My writing style has changed and matured somewhat (debatable, I know), but lets pick up this topic right where I left it off.

First, lets start with wages - you know, your salary, what you make at work.

First, lets take a look at this graph, from Economic Policy Institute, dateline September 27, 2007.


Click it - don't be a pussy. I dare you!

As you can see, wages did not grow the same for everybody. The graph takes as its point of reference the following if: if "the rate of wage growth had been the same for all wage earners over the past 25 years."

Needless to say, that did not happen in America, and some people's wages grew much more than others.

Specifically, the very, very rich people's wages grew at an incredible rate.

Quoting the article:
Social Security records up through 2004 show that the wages of those in the upper 5% of earners, especially those in the upper 1%, grew far faster than everyone else's wages. For instance, the upper 1% of earners (those individuals earning more than $219,000 in wages in 2004) received 12.9% of all wage income in 2004, up 5.6 percentage points from their 7.3% share 25 years earlier in 1979.


Got that?

The 1% elite of America received 7.3% of all wage income... in 1975.

In 2004, that richest 1% of America received 12.9% of all wage income of this country.


Think about it.

In 2004 the richest 1% scooped up more than 12% (closer to 13%) of all wages.

Again, quoting the article to see how my class - the poor, downtrodden, jobs exported to Asia, Latin America, Africa, taxed to hell, no medical insurance for most of us middle class - is doing:
Correspondingly, wage earners in the middle-fifth would have earned $30,538 in 2004 if wage growth had been equitable, but they instead earned $26,718, 12.5% or $3,820 less a year.


So, as you can see, the wages did not grow the same for everyone.

Shocking, ain't it?

This explains the feel good graph off the Social Security page, which shows a nice upward curve of Average Wage Indexing Series, going from less than $5000 in 1950 to over $40,000 to modernity.

Well, super - but as I have shown by using the other graph, the elite rich 1% skewers that nice, feel good graph, leaving us with an empty feeling in the gut (and an empty wallet in the pocket). It's not as if everyone's wages grew at the same or even similar rate...

Lets go to a great site (no, really, it is one of the greatest things on the internet at the moment), called (drums! trambones! tambourines! naked hourises!):

http://www.measuringworth.com/calculators/uscompare/

I promise you, it was worth reading through this article just to get that glorious link.

Do yourself a favor and click it.

Do you see that grey box of knowledge on the right?

Do yourself a favor - and use it.

If you are really interested, you can read up on their methodology.

They use five indicators, and because this is (to me, anyway) a fascinating subject, I will copy their explanations of the indicators (feel free to skip this section if you must):

The CPI is most often used to make comparisons partly because it is the series with which people are most familiar. This series tries to compare the cost of things the average household buys such as food, housing, transportation, medical services, etc. For earlier years, it is the most useful series for comparing the cost of consumer goods and services. It can be interpreted as how much money you would need today to buy an item in the year in question if its price had changed the same percentage as the average price change.

The GDP Deflator is similar to the CPI in that it is a measure of average prices. The "bundle" of goods and services here includes all things produced in the economy, not just consumer goods and services that are reflected in the CPI.

The Consumer Bundle is the average dollar value of the annual expenditures of a "consumer unit". The consumer unit could be a family or another type of household. The main point is that spending is a joint decision of the members of the unit. The bundle increases over time as household income increases. Unlike the CPI, not only the cost but also the amount of goods and services increases over time. Note, the 2006 value of the consumer bundle will not be published until November 2007.

The Unskilled Wage Rate is good way to determine the relative cost of something in terms of the amount of work it would take to produce, or the relative time it would take to earn its cost. It can also be useful in comparing different wages over time. The unskilled wage is a more consistent measure than the average wage for making comparisons over time.

The GDP per capita is an index of the economy's average output per person and is closely correlated with the average income. It can be useful in comparing different incomes over time.

The GDP is the market value of all goods and services produced in a year. Comparing an expenditure using this measure, tells you how much money in the comparable year would be the same percent of all output.


Hey, you! Yes, you! Wake up!

Got all that?

Yes? No?

Doesn't really matter, in all honesty.

What I did, was I put in Initial Year of 2000, Desired Year of 2007, and Initial Amount of $100.

I was curious, because my salary has not (surprise!) grown that much since the year 2000, and I was curious how much I was losing in inflation.

Staggering result.

In 2007, $100.00 from 2000 is worth:
$120.41 using the Consumer Price Index
$119.82 using the GDP deflator
$132.47 using the value of consumer bundle *
$120.25 using the unskilled wage *
$131.50 using the nominal GDP per capita
$140.65 using the relative share of GDP


So, while most people's wages grow by $10, $30, perhaps a few thousand per year (if you switch jobs and get a much better salary), the reality is that inflation is killing us all (except for the rich 1% of course).

Our wages have grown by a few thousand (heck, for most people if they stay at the same job or don't have flashy high tech or other high paying careers, but are doing factory work, being a secretary, etc - their wages grow in $100's of dollars, not thousands, and perhaps even THAT is being overly optimistic).

The money that we are being paid for our labor (which is either a constant or higher, as you learn on the job and become a better employee) is growing much less than the dollar loses in value.

Again, to hammer the point home (it is my style after all - you should be used to it by now):
Key concept here boys and girls: While we are getting higher wages from year to year, they do not catch up to inflation and the decrease of the dollar's REAL value and so, effectively, we Americans are making less each year. Simplistic? Yeah, sure. Everybody knows about it? Elementary economics 101 material? Perhaps, but it bears repeating anyway.

You can go the other way - go back, so to speak.

In 2000, $100.00 from 2007 is worth:
$83.05 using the Consumer Price Index
$83.46 using the GDP deflator
$75.49 using the value of consumer bundle
$83.16 using the unskilled wage
$76.05 using the nominal GDP per capita
$71.10 using the relative share of GDP


Keep in mind, due to this ongoing financial crisis, caused by cheating - err, sorry, bending the laws - banks and investment "banks" (ain't deregulation and a hands off approach from the government just greeeeeeat?) - the slide of the dollar into worthlessness will pick up.

Where do you think the money that the FED is going to lend to the banks is going to come from?

Yes, selling of T-bills, and hidden auctions (where banks don't have to reveal themselves as they get our tax money at a great discount rate) is one way, but eventually (if it isn't happening already) Uncle FED will start the printing presses and churn out the money - billions and billions of dollars.

I wonder how much $100 in 2000 is worth now, in 2008?

And how much it will be worth in 2009?

 Del.icio.us Add to my Technorati Favorites! StumbleUpon

6 comments:

rewinn said...

That's pretty interesting.

It's obvious that we're working harder and longer, only to be distracted by pretty toys (like this new computer.)

But you can't get something for nothing ... forever. Sooner or later, the bill comes due. And then who will we blame?

A lot of people don't have the ballz to think it through, and realize they've been had. So they'll find someone else to blame.

Good luck explaining things with "Facts" and stuff. That's useful but most people will blow you off because they don't want to admit they helped the rich steal from us through devaluation.

You need to quick, visceral image to reframe the issue. Good luck!

Greg Bacon said...

"Mr Fuld said he took "full responsibility for the decisions that I made and for the actions that I took" and defended his actions as "prudent and appropriate" based on information he had at the time."

The classic GW Bush defense; the intelligence I was given said Saddam was going to nuke us.

And another pack of liars, thieves and scoundrels will go unpunished, free to scoot away in their private jets to their mansions and privately owned islands.

While We the Suckers are left to pick up the tab for another Wall Street orgy.

Like the ones in 1873, 1893, 1907, 1929, 1980 and now.

"Give American, give till it hurts to help these poor, starving Wall Street million and billionaire's, it's the right thing to do"

Anonymous said...

On a side note: It's very interesting to me (read: frustrating) that Congress is now spending its time trying to pin the blame for the credit crisis on Wall Street greed. Now, don't get me wrong. Of course, Wall Street is run by greedy bastards. But that's a given. That's known known. In fact, in capitalism we count on the greedy to be just that - greedy. But we also, count on government to keep a watchful eye on the greedy and enact laws that keep that demon under control. But Congress did not do that. The let the Wall Street lobbyist talk that into (read: bribe them into) passing laws that unchained the greed demon and let him run wild. Now that all hell has busted loose, Congress is determined to pin the blame on somebody who is not themselves. Sorry for the long rant...but boy I'd love to crack some skull so Capital Hill - demopublican and republicrate both.

Anonymous said...

Anti-American much?

You are so anti-American it's ridiculous. If it weren't for the religious "morons" as you put it this country would have never of been founded.. But then again you would probably be happy about that.

Why do you live here if all you do is bitch about it!?

Anonymous said...

You hate America but in most other countries you would not be allowed to bullshit you bullshitter

Anonymous said...

Some people still love America!

Go America!