Purchasing power

That's the firm's rate because a firm counts its wage bill in the money it sells in.

Purchasing power tells you what a rupee fetches at the market stall.

It takes only about 19.9 rupees in India or 72 cents in Germany to buy what a dollar buys in America.

That's the worker's rate.

What's our third and final lens?

The final perspective is the purchasing power view.

This one answers a very personal question.

Did this investment actually make me wealthier? It does this by breaking the return into two components, the real return plus an inflation premium.

That's the entire concept in a nutshell.

The inflation premium is the portion of your total return that is simply matching the rate of inflation.

It's not a gain, it's just the amount required to keep your capital from losing its purchasing power.

So if your total return was 10% and inflation was 3%, then 3% of your return was just the inflation premium.

In bullion terms, that's what matters most.

I see similar mistakes commonly made online when people try to put into context the amount of purchasing power fiat currency wage earners and savers are losing.

For example, this post here tried to state that from the year 2000 until 2030, US dollar holders will have lost some 75% of buying power.

The bad news, at least in bullion terms, the losses from the year 2000 through 2030 will likely become much worse.

It's a similar story for other fiat currencies, like the fiat Chinese yuan, for example.

No surprise, the Chinese keep buying bullion in record amounts currently.

They appear to understand these hard purchasing power loss facts much better than the financialized bubble Western world, which has yet to fully come to terms with what's going on.

This is the same story for all fiat currencies, losing value versus bullion by design over time.

That's approximately 51% of the time.

So in almost half the years examined, the returns weren't sufficient to preserve the purchasing power after accounting for inflation and our assumed investment costs.

But what might surprise you isn't the individual years, it's what happened when we looked at longer periods, because most investors aren't investing for just one year.

When I looked at rolling five-year periods, bonds failed to keep up with inflation 50% of the time.

20-year periods, bonds failed to keep up with inflation in 52% of this historical periods.

20 years.

That's a substantial amount of time to invest your money and potentially end up with less purchasing power than you started with, and this wasn't an isolated event.

We see extended periods of disappointing inflation-adjusted returns through parts of the '40s and '50s, during the high inflation environment of the '70s, and in more recent periods.

It is the dollar that people need to do deals in oil in, globally, internationally.

So the dollar has the ability to maintain its purchasing power because of the global assumption that this piece of paper that says 5, 10, 20, 100 has an inherent level of value.

Because that fiat currency is controlled by a federal reserve in this scenario, in this case-

Which isn't federal.

but it's called the Federal Reserve.

Our country has the ability to put as many of these dollars into circulation as possible, or as much as they want, and they do so sometimes for the benefit of balancing their own books.

But what people don't understand is, over time, the more the dollar gets printed, the more the dollar gets circulated, the more of them in circulation devalues the purchasing power of that dollar.

And it doesn't mean a $100 bill now is a $94 bill, but what used to be $100 as a result of more money being put into the market based upon inflation now might cost $135.

They're watching everything.

so they're claiming they're giving them greater flexibility in direct purchases outside the country but they can't get cash right so or it's the cash is limited here's the official document so all right this is also excuse me a pretty good article exceptional measures to protect citizens purchasing power And there's really nothing new in conjunction with parliamentary moves aimed at taking measures to support the market and stabilize the fight.

Oh, and you know, let me just show you.

They did.

Let's go back.

So let's see.

Yeah, in conjunction with parliamentary moves aimed at taking measures to support the market and stabilize the financial situation in order to protect the purchasing power of citizens after adjusting the dollar exchange rate, the prime minister advisor.

And who is that? Yes, Mohammed Saleh indicated that activating the sectors most capable of absorbing the workforce is one of the economic priorities, foremost among them the construction, housing and building sector, revealing that this sector absorbs approximately 23% of the workforce.

Um-

I was going to say, isn't there, uh, uh, measures like PPP, purchasing power parity or whatever it is?

Yes.

And I, I can, I can bring that to life-

[laughs] Mm.

Okay.

Um, so yeah, the, the way that Mog would translate this, he would say, "Look, um, average wage in Swindon is 34,000 and ev- average wage in Oblensk," which I decided was a, uh, a Russian version of Swindon, "is 9,000." So okay, you think, "Right, well, we're obviously vastly richer than Russia then." The issue is, is when you translate it on a local purchasing power basis, in which case the gap mostly closes, 34,000 to 23,000.

Um, interestingly, the average homes are, work out roughly the same.

Yeah.

But at the end of the day, gold and silver's about safety and maintaining your purchasing power.

Mm-hmm.

So we just have made that process simple.

Uh, gold has always been a hedge against inflation.

Mm-hmm.

And the premise is, instead of storing my savings in a fiat dollar, I should probably store it somewhere that it's actually going to increase over time in value or is just going to maintain its purchasing power.

'Cause gold has definitely retained its value and then some.

That makes a lot of sense.

Yeah, it means that income represents true historically high purchasing power.

But

if general incomes are up across the board like that, does that mean the historically stubborn wage gaps are finally closing? Or is everyone just moving up the ladder at the same unequal distance?

Precisely.

The system is actively compressing the distance between the top and the bottom.

So what does this all mean? We have record high purchasing power.

Poverty is dropping.

Yeah.

So you lost purchasing power in that period.

Now, I've not run the chart.

I've done it from German during the Germany hyperinflation.

But if you're an investor in the U.S. and we get that type of outcome and you're just passive, you're 85 percent U.S. and you don't have any commodities exposure or very little because you're herded into the performance chasing, then you're losing purchasing power.

But if you're adaptive and you shift the large majority of your assets that's into those international economies that their currencies actually stay strong or the commodities that hold their purchasing power, then you might be able to get closer to that 2 million percent return and maintain your purchasing power.

And that's the sad part about an inflationary event.

or hyperinflation, your number one goal in the end is to make sure my money can buy just as many cans of soup at whatever price they'll be in the future as they will today.