Friday, December 11, 2009

Even Steven

The U.S. Dollar Index has nearly fully retraced gains made from the start of this blog in April 2008, through March 2009. Had I said in March to divest from the dollar and jump into the stock market, I would be the smartest blogger on the Internet, and had I done so myself I would be around 40% richer. Part of the rebound was the expected "dead cat bounce" seen commonly in deflationary corrections. Part is from recent bailout activity. How much is which I cannot say due to the seeming reduction in transparency of bailouts over the past few months.

Anyway, the dollar has not quite fully retraced its path but it is close and it easily could. Given this, I'd like to reflect on the purchasing power of the dollar over this time.

From March 2009 through today, clearly it has not been as good an investment as the stock market, or against foreign currencies. But has it been bad? Comparing today to April 2008, I would rather buy a house today. I think now is a better rental environment as well. I would rather fill my car with gas today then back then. I would rather hire an employee today. Prices of food and everyday goods remain similar—however deflation would first present as increased rates of items on sale. Has there been that? I think so, but overall my grocery tab feels about the same. At least it hasn't increased further as it had been doing though most of this decade. I'd even rather buy stocks now than a year-and-a-half ago, though if I had wanted to I missed my opportunity last March. Generally, since the start of this blog, deflationary forces have been prevailing, and the purchasing power of the dollar is stronger.

Of course, one thing that I wouldn't rather buy now is gold, that recently peaked at $1214/oz. From the start of this blog until today, gold has had some ups and downs but is up around 25%.

The U.S. Dollar Index is limited in that it compares the dollar against other currencies. If all currencies were to devalue simultaneously, which isn't far fetched as central banks frequently act together, the index in that case would stay even, while the purchasing power of the dollar is lost. Mostly the purchasing power of the dollar has held steady or strengthened, with the main exception being gold.

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