In order to determine if any economy is creating more wealth we need to look at the buying power of our money. The number of millionaires in any particular country is used to infer that wealth is increasing. [In 2008 the number of millionaires in the world actually dropped world wide from 11 million to 9 million.] But instead of looking at the number of millionaires lets look at the buying power of a million dollars over time.
As an example I’ll use my grandfather. My grandfather was not a millionaire. But in 1925 he bought a full basement, two-level home in St Vital, a suburb of Winnipeg, Manitoba. The purchase price was somewhere around $750. But to keep things in easy to figure numbers let’s agree the purchase price was one thousand dollars ($1,000).
If, in 1925 a full basement two level home could be purchased for one thousand dollars, a millionaire could take ten percent of his wealth (or $100,000) and purchase one hundred homes. Checking the internet for home prices in Winnipeg today one will see that a millionaire could not buy one home in St Vital with ten percent of his wealth. The average price seems to be somewhere around $140.000. This means that when considering the price of St Vital homes, one thousand dollars in the 1925 was equal to $140,000 today. Or, put another way, you need $140 dollars today to buy what one dollar bought in the 1925. However one looks at it, the buying power of a dollar today is a small fraction of what it was in 1925. That’s the magic of inflation. As a result, being a millionaire today is not the same as it was in 1925. To have the same buying power today as a 1925 millionaire one would need to have just under $150,000,000! If we remember that the actual price of my grandfather’s house was $750 a millionaire could have bought 1333 houses in St Vital in 1925. At $140,000 per house today one would need $186,620,000 today to purchase 1333 houses!
Here’s the shocking figure in all of this. If you are a millionaire dealing in Winnipeg real estate today you have the same buying power as a person with $5,359 in 1925! This is the wonders of inflation and the magic of the word millionaire. Makes you feel warm all over, doesn’t it?
The following was taken from: http://www.economist.com/.
MONEY ILLUSION
When people are misled by inflation into thinking that they are getting richer, when in fact the value of money is declining. Whether, and how much, people are fooled by inflation is much debated by economists. Money illusion is used by some economists to argue that a small amount of inflation may not be a bad thing and could even be beneficial, helping to “grease the wheels” of the economy. Because of money illusion, workers like to see their nominal wages rise, giving them the illusion that their circumstances are improving, even though in real (inflation-adjusted) terms they may be no better off. During periods of high inflation double-digit pay rises (as well as, say, big increases in the value of their homes) can make people feel richer even if they are not really better off. When inflation is low, growth in real incomes may hardly register.
Inflation: The Central Bank’s tool that gets you to feel good about having less.
When you truly understand the operations of the world’s Central Banks you’ll see that they’re not really interested in building profits for themselves as much as they are aiming at control by indebting countries to them. They are truly debt farmers. The seed they plant is usury (interest) and the crop they reap is debt. Debt is the lever they use to exercise control over Governments, corporations and individuals. Who can say that they have not felt this lever?
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Comments to the author are welcomed.
david.ealing@gmail.com
