Charles Hugh Smith is the author of a popular alt-financial blog called Of Two Minds, named by CNBC some years back as one of “the best alternative financial blogs available.” Smith has the capacity to see financial matters both conventionally and unconventionally, an ability that could prove invaluable to those who possess it as the economic seas grow ever murkier.
At the beginning of his most recent article, Smith asks a question many Americans surely have been pondering over the last several years: “What if the ‘prosperity’ of the past 50 years is mostly a statistical mirage for the bottom 80% of households?”
Smith makes the compelling case for what he terms a “concealed crisis of decline” in the American economy affecting those citizens least able to withstand its effects. According to Smith, this crisis exists principally because the purchasing power of American wages has eroded so drastically.
Smith notes that inflation is responsible for this greatly diminished purchasing power, but he cites another reason for it, as well: The quality of the goods and services now produced has become so poor that purchases result in transactions where the net position of the buyer is on the losing side of a zero-sum game. In my opinion, Smith’s logical argument serves as another reason why it is so important for Americans to own alternative, safe-have assets with the capacity to defend portfolios against losses in purchasing power.
Low-Quality Goods and Services Further Reduce Purchasing Power
Here’s how Smith describes the “two-part” purchasing power problem:
“The [key] to understanding the concealed crisis of decline [is] purchasing power relative to wages/earnings–how many goods and services can wages buy? For the average American household, wages have risen modestly while the purchasing power of those wages has plummeted.
“Furthermore, the quality of goods and services has in many cases declined sharply, so that even if prices have dropped, what you get for your money has fallen even further, effectively reducing the purchasing power of your wages.”
The first example Smith cites in his article is one that will undoubtedly have readers nodding their heads in agreement: the deteriorating quality of household appliances. As Smith points out, there was a time appliances were created to last for decades. Not anymore, apparently. Now, it is not uncommon for an appliance to die after just a few years, and with the high cost of repairs – due largely to the electronics that have become an intrinsic part of the machines – the tendency among consumers is to junk the still-basically-new washer, dryer, etc., and simply buy another.
Ryan Finlay, who makes his living buying and selling appliances, validates what Smith has to say in an excellent article he wrote several years ago discussing why appliances are so shoddily made nowadays. Disturbingly, but unsurprisingly, Finley outlines in detail just how it is that typical appliances are now built to fail and otherwise degrade, forcing more frequent replacement by a consumer class already saddled with a diminished financial capacity.
This goods-and-services-based loss in purchasing power is not limited to appliances. Smith points out how money spent in areas such as housing, healthcare and college not only does not provide the real return it once did but results in consumer “loss” transactions.
Take the cost of higher education. There was a time when earning a college degree guaranteed a significantly higher lifetime income compared to having “only” a high school diploma. Broad statistics still bear that out generally speaking, but if you peer into the details you can find the devil lurking.
Upon close examination, it seems popular liberal arts degrees provide a decidedly underwhelming advantage when it comes to lifetime earnings. A 2015 article at ScienceDaily.com cites data indicating men with a college degree in an education-related major earn a lifetime average of just $46,000 more than men who have no more than a high school diploma. Throw in the now-massive cost of getting a degree in the first place, which can include burdensome loan obligations for many decades after graduation, and it’s clear why the purchase of a college degree is a transaction that can end up squarely in the “loss” column from a pure dollars-and-cents perspective.
Moreover, supposed wage growth over the last half-century has not kept up with skyrocketing costs of goods and services. Yes, earnings in raw dollars have increased during the last 50 years. But last year Pew Research published data showing workers effectively received no net benefit from those higher wages because losses in purchasing power have been so great.
It’s important to recognize the battle is being waged on multiple fronts. You’re not only having to fight the negative effects of Federal Reserve “monetary policy” on your purchasing power but you’re also now essentially forced to purchase “big ticket” goods and services that provide less value which further suppresses your purchasing power. As Smith puts it, “Adjusted for purchasing power and quality, the average paycheck buys far less than it did 50 years ago.”
Gold and Silver Can Be Effective Stores of Value
The relentless attack on purchasing power means it is essential to preserve value where possible. It’s difficult for the average American to offset the loss in purchasing power that results from having to purchase goods and services produced to a substandard level of quality. However, given gold’s demonstrated record as a store of value, it’s no surprise some turn to precious metals to help defend cash and dollar-denominated assets against the loss of purchasing power. As Alan Greenspan, perhaps the most famous chairman in the history of the Federal Reserve, revealingly declared back in in 1966, “Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.”
Since the Beginning of the Federal Reserve in 1913, the Inherent Value of the U.S. Dollar Has Plummeted More Than 96%
If you own an IRA or 401(k), or are working to grow any other significant savings, you owe it to yourself to find ways to help protect the inherent value of your dollar-denominated assets from a loss in purchasing power. Gold and silver could potentially help you. To learn more about why physical gold and silver is used to help defend retirement portfolios from a variety of economic and geopolitical threats, call Augusta Precious Metals at 800-700-1008 and speak with one of our knowledgeable gold and silver professionals. And if the idea of purchasing gold and silver inside of a tax-advantaged account sounds appealing, ask the Augusta team member you speak with for information about a silver and gold IRA.