+- Dylan LeClair -- 957d -----------------------------------------------------------------------------------------[...]+ | | | You'll often see charts or visuals illustrating the depreciation of the $USD over time, normalized to $1.00, of | | which I occasionally share myself. | | | | However, there's an important caveat: these visuals rarely account for short-term yields. Displayed below is the | | purchasing power of $1, adjusting for annual CPI inflation (in red) versus the purchasing power of $1 accounting for | | 1-year Treasury yields less annual CPI inflation (in blue), starting from 1962 | | | | Notice anything? | | | | The purchasing power of $1 from 1962 to the present equates to $1.85 when accounting for 1-year Treasury yields and | | inflation. Meanwhile, adjusting for inflation alone leaves you with just $0.10 of purchasing power. | | | | Quite the massive difference. | | | | However, there's more nuance to consider: | | | | 1) Let's separate the data into distinct eras, | | | | From 1962 to start of 2009: | | - Average annual inflation: 4.40% | | - Average 1y yields: 6.22% | | - Average difference: +1.82% | | Real gains in purchasing power. | | | | From 2009 to Present: | | - Average annual inflation: 2.34% | | - Average 1y yields: 1.00% | | - Average difference: -1.34% | | Real losses in purchasing power. | | | | 2) The data doesn't include the 1940s where financial repression massively devalued the USD to erode real debt | | burdens (the data I quickly threw together only went back to 1962) in the post war period. | | | | 3) Why 2009 for the change in eras? What has changed? If the U.S. can just pay a nominally higher yield than the | | inflation rate in perpetuity, are the fiat doomers really just delusional? | | | | In my view: | | | | - Positive real yields can be sustained with a clean balance sheet. It's feasible for the government to pay | | creditors a positive real interest rate when real debt burdens are low, demographics are booming, and the global GDP | | is exploding as the world industrializes. | | | | - With Debt to GDP meaningfully > 100% and other tailwinds reversing, this is no longer the case. Post GFC and the | | introduction of ZIRP + QE to facilitate "growth", has the positive real yield era behind us, at least until real | | debt burdens have been eroded - which will take either explosive real growth, or a steady dose of inflation above | | yields, debasing creditors in the process. | | | | The Bottom Line: The reality is that the average/median American individual or family often doesn't have much | | disposable income to capture such yields. The ones that do, benefit; and the ones that don't are the ones that pay | | for it. | | | | When you look at charts showing record wealth disparity, or are wondering why the political landscape is more | | polarized than ever, keep this chart in mind. | | | | Fiat inflation didn't bother the investor class from for forty years as yields outpaced inflation. Currency | | devaluation wasn't felt in the slightest by this cohort, they didn't just escape the devaluation, but outpaced it | | significantly. | | | | Now, with Debt to GDP levels domestically and globally near record levels, expect the post 2009 dynamic to continue | | into the future on a longer time frame. Don't let the current tightening cycle fool you as to what must occur. | | | | Inflation > Yields, over a sustained period of time, is the only way global governments can mask their insolvency. | | | | Thanks for coming to my Ted Talk. https://m.primal.net/HLGc.png | | | +-- reply --------------------------------------------------------------------------------------------------------- ---+You'll often see charts or visuals illustrating the depreciation of the $USD over time, normalized to $1.00, of which I occasionally share myself. However, there's an important caveat: these visuals rarely account for short-term yields. Displayed below is the purchasing power of $1, adjusting for annual CPI inflation (in red) versus the purchasing power of $1 accounting for 1-year Treasury yields less annual CPI inflation (in blue), starting from 1962 Notice anything? The purchasing power of $1 from 1962 to the present equates to $1.85 when accounting for 1-year Treasury yields and inflation. Meanwhile, adjusting for inflation alone leaves you with just $0.10 of purchasing power. Quite the massive difference. However, there's more nuance to consider: 1) Let's separate the data into distinct eras, From 1962 to start of 2009: - Average annual inflation: 4.40% - Average 1y yields: 6.22% - Average difference: +1.82% Real gains in purchasing power. From 2009 to Present: - Average annual inflation: 2.34% - Average 1y yields: 1.00% - Average difference: -1.34% Real losses in purchasing power. 2) The data doesn't include the 1940s where financial repression massively devalued the USD to erode real debt burdens (the data I quickly threw together only went back to 1962) in the post war period. 3) Why 2009 for the change in eras? What has changed? If the U.S. can just pay a nominally higher yield than the inflation rate in perpetuity, are the fiat doomers really just delusional? In my view: - Positive real yields can be sustained with a clean balance sheet. It's feasible for the government to pay creditors a positive real interest rate when real debt burdens are low, demographics are booming, and the global GDP is exploding as the world industrializes. - With Debt to GDP meaningfully > 100% and other tailwinds reversing, this is no longer the case. Post GFC and the introduction of ZIRP + QE to facilitate "growth", has the positive real yield era behind us, at least until real debt burdens have been eroded - which will take either explosive real growth, or a steady dose of inflation above yields, debasing creditors in the process. The Bottom Line: The reality is that the average/median American individual or family often doesn't have much disposable income to capture such yields. The ones that do, benefit; and the ones that don't are the ones that pay for it. When you look at charts showing record wealth disparity, or are wondering why the political landscape is more polarized than ever, keep this chart in mind. Fiat inflation didn't bother the investor class from for forty years as yields outpaced inflation. Currency devaluation wasn't felt in the slightest by this cohort, they didn't just escape the devaluation, but outpaced it significantly. Now, with Debt to GDP levels domestically and globally near record levels, expect the post 2009 dynamic to continue into the future on a longer time frame. Don't let the current tightening cycle fool you as to what must occur. Inflation > Yields, over a sustained period of time, is the only way global governments can mask their insolvency. Thanks for coming to my Ted Talk. https://m.primal.net/HLGc.png
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root ada379f3…391c · depth 1 · · selected ada379f3…391c
You'll often see charts or visuals illustrating the depreciation of the $USD over time, normalized to $1.00, ofwhich I occasionally share myself.However, there's an important caveat: these visuals rarely account for short-term yields. Displayed below is thepurchasing power of $1, adjusting for annual CPI inflation (in red) versus the purchasing power of $1 accountingfor 1-year Treasury yields less annual CPI inflation (in blue), starting from 1962Notice anything?The purchasing power of $1 from 1962 to the present equates to $1.85 when accounting for 1-year Treasury yieldsand inflation. Meanwhile, adjusting for inflation alone leaves you with just $0.10 of purchasing power.Quite the massive difference.However, there's more nuance to consider:1) Let's separate the data into distinct eras,From 1962 to start of 2009:- Average annual inflation: 4.40%- Average 1y yields: 6.22%- Average difference: +1.82%Real gains in purchasing power.From 2009 to Present:- Average annual inflation: 2.34%- Average 1y yields: 1.00%- Average difference: -1.34%Real losses in purchasing power.2) The data doesn't include the 1940s where financial repression massively devalued the USD to erode real debtburdens (the data I quickly threw together only went back to 1962) in the post war period.3) Why 2009 for the change in eras? What has changed? If the U.S. can just pay a nominally higher yield than theinflation rate in perpetuity, are the fiat doomers really just delusional?In my view:- Positive real yields can be sustained with a clean balance sheet. It's feasible for the government to paycreditors a positive real interest rate when real debt burdens are low, demographics are booming, and the globalGDP is exploding as the world industrializes.- With Debt to GDP meaningfully > 100% and other tailwinds reversing, this is no longer the case. Post GFC andthe introduction of ZIRP + QE to facilitate "growth", has the positive real yield era behind us, at least untilreal debt burdens have been eroded - which will take either explosive real growth, or a steady dose of inflationabove yields, debasing creditors in the process.The Bottom Line: The reality is that the average/median American individual or family often doesn't have muchdisposable income to capture such yields. The ones that do, benefit; and the ones that don't are the ones thatpay for it.When you look at charts showing record wealth disparity, or are wondering why the political landscape is morepolarized than ever, keep this chart in mind.Fiat inflation didn't bother the investor class from for forty years as yields outpaced inflation. Currencydevaluation wasn't felt in the slightest by this cohort, they didn't just escape the devaluation, but outpacedit significantly.Now, with Debt to GDP levels domestically and globally near record levels, expect the post 2009 dynamic tocontinue into the future on a longer time frame. Don't let the current tightening cycle fool you as to what mustoccur.Inflation > Yields, over a sustained period of time, is the only way global governments can mask theirinsolvency.Thanks for coming to my Ted Talk. https://m.primal.net/HLGc.png