Categories
Economy

Dollar Loses Reserve Currency Status

In this article we discuss the future of how the dollar loses reserve currency status among world currencies. In addition, we touch on how the dollar became the world reserve currency, the history of the US Dollar. We also provide information about the difference between real money and fiat currency.

In a recent Market Insider article, Stanley Druckenmiller, CEO of Duquesne Family Office, was quoted as saying that the US Dollar would be removed as the world reserve currency in the next 15 years (by 2036).

Clearly, the US Dollar has grown weaker in the past 20 years. The US debt has continued to grow out of control and the American economy has become weaker. The United States has become a gross importer and has continued to produce and export very little.

Social Program Budget and War Spending Overload

Over the 20th and 21st Century, America continued to borrow greater sums of money to fund wars throughout the world. The US occupies dozens of nations and has fought wars recently in Afganistan, Iraq and the like. At home, the Baby Boomer generation (born roughly 1946-1964) are now beginning to retire from the labor force.

Dollar Loses Reserve Currency Status

Yet, it is unclear how American social programs such as the Social Security Program and Medicare will pay for all the retirees’ benefits. Furthermore, the labor pool (those who pay taxes) has continued to shrink. With fewer people contributing to these Federal programs, and more requests for benefits coming in daily, something has to give.

US Dollar History

The Continental Congress issued the first United States paper money in 1775, one year prior to the Declaration of Independence. The purpose of the money issuance was to assist with military expenses. The currency lost value. As a result, citizens of the US stopped using the currency.

On July 6, 1785 the Continental Congress officially adopted the dollar as official legal tender, beginning the official US Dollar history. The Continental Congress was a confederation of delegates who acted as representatives of citizens of the American Thirteen Colonies.

Coinage Act of 1792

On April 2, 1792, the US Congress passed the Coinage Act . The official name of the Act is, “An act establishing a mint, and regulating the Coins of the United States.”

The Coinage Act of 1792 established the US Mint and the US Dollar. The US Silver Dollar became the official unit of money for transactions in the United States. The Silver Dollar was subdivided into several denominations: one cent (penny), five cents (nickel), ten cents (dime), quarter-dollar (quarter), etc.

Silver or gold made up each coin, except for the penny. Additionally, it is significant to note that the US One-Dollar bill note did not appear until 1876. This was approximately 100 years after the US Continental Congress approved the first US currency.

During the Civil War, Dollars were called “Greenbacks.” The term was coined because the notes were colored green. In 1869, the US government established a centralized money printing system. As a result, money printed was known as United States Notes. The Greenback played an important and well-known part in US Dollar history.

Intrinsic Value

During early US Dollar History, money was backed by silver and gold. It’s interesting to note that silver and gold are commodity metals that have an intrinsic value, whether in the form of a coin, a bar, jewelry, etc. More than one hundred years later in 1876, the US Government started printing currency on paper. Yet, paper money has no intrinsic or real value.

Federal Reserve Note

In the United States, currency is called “Federal Reserve Notes.” The term is equivalent to “cash” or “money.” It can also be called “banknotes.”

In fact, if you look at a Dollar Bill, it reads, “Federal Reserve Note” at the top. Next, the Federal Reserve Act of 1913, which established the Federal Reserve Bank, also authorized the issuance of the US Dollar Federal Reserve Notes. Obviously, the Federal Reserve Bank plays a critical role in the US Dollar history. Finally, banknotes are legal tender. These notes are the official currency used in the United States. In 1914, the first Federal Reserve Note was issued.

In 1913, the Federal Reserve Bank was established. At the time, existing law required the exchange of currency for gold. However, in 1933, it was illegal to own gold coins. In addition, Federal Reserve Notes were not supported by gold. Later, Americans had to use Federal Reserve Notes. There was no other option to pay debts, except to use the official currency.

Bretton Woods System

In July 1944, a gathering of over 700 delegates from around the world took place in Bretton Woods, New Hampshire. United Nations Monetary and Financial Conference was its official name. The purpose of the meeting was to improve the economy. In addition, the conference established a world banking system, including the International Monetary Fund.

World Reserve Currency

Subsequent to World War II, the United States Dollar became the official world reserve currency. As a result, a critical chapter was written on US Dollar history. This forever shaped the future of the country. The impact of this change to global finance was significant and had long-lasting impacts on both US influence and power, as well as purchasing power outside the United States. A reserve currency is one where the central banks maintain a fixed exchange rate with a particular currency and their own currencies. In this case, the US Dollar became the reserve currency. As a result, this change played a vital role in the financial stability and prosperity that Americans enjoyed in the latter 20th century.

As world reserve currency holder, the United States was required to redeem US Dollars for gold. Additionally, after World War II, the United States was one of the largest holders of gold bullion in the world. As a result, world reserve currency status for the US Dollar seemed like a natural fit. Unfortunately, in 1971, deficit spending by the US and an excess of paper money caused countries to increase the demand for gold. In response, the US Dollar history changed forever and the Dollar was no longer on the gold standard. This meant that gold would no longer back the Dollar. Many believe that ending the gold standard was the beginning of how the dollar loses reserve currency status worldwide.

Crypto Passive Income Money

Countries Using the US Dollar

“Five US Territories and seven sovereign nations use the US Dollar as their official currency.” –Investopedia

The territories include Puerto Rico, Guam, the US Virgin Islands, Northern Mariana Islands and American Samoa.

In addition, the following countries utilize the US Dollar:

  • British Virgin Islands and the British Turks and Caicos Islands.

Countries throughout the world that use the US Dollar as a surrogate or a proxy for their own currency include:

  • Panama, Zimbabwe, Cambodia, Ecuador, the Bahamas, El Salvador, Nicaragua, Timor-Leste, Micronesia, Palau, Marshall Islands, Bahamas, Barbados, St. Kitts and Nevis, Costa Rica, Belize, Myanmar, Caribbean Territories and Liberia.

Note: if the dollar loses reserve currency status, the aforementioned countries will no longer have reason to use the US Dollar.

Fiat Currency

It’s important to understand what fiat currency is and the difference between real money and fiat currency. Gold and silver do not act to back fiat currencies. Fiat currency is a promissory note from a government. As a result, fiat currencies frequently fall prey to high inflation, devaluation and ultimately failure. They typically have no intrinsic value. Unfortunately, most modern currencies are fiat currencies. Some investors believe that the US Dollar being a fiat currency is how the dollar loses reserve currency status.

Why Fiat Currency is Popular?

Central Banks, such as the Federal Reserve Bank of the United States, can increase the money supply and increase fractional reserve banking by printing more fiat currency. As a result, these central banks can use the power of interest rate change and money printing to manipulate entire economies.

Although the central banks have good intentions, their meddling with the economic system can wreak havoc on the economy and cause distortions in markets. Often, altering interest rates and printing money simply delays the problem, requiring bigger solutions later. Many investors believe the weakening fiat market may be the domino that leads to how the dollar loses reserve currency status in the world.

Real Money

Merriam-Webster Dictionary defines “money” as,

Something generally accepted as a medium of exchange, a measure of value, or a means of payment: such as officially coined or stamped metal currency, money of account or paper money. -Merriam Webster Dictionary

Is the US Dollar real money or fiat currency?

A currency not backed by gold or silver is not real money. Unfortunately, government promises do not meet the criteria. Fiat currency is simply a legal tender paper note that the government requires everyone to use for payments. By definition, fiat currency is incontrovertible to gold or silver.

On the other hand, real money must have the backing of valuable or tangible assets. For example, tangible commodities such as gold and silver have supported currency. In addition, money backed by gold and silver has a value tied directly to the value of the silver or gold asset. As a result, real money is inherently stronger than fiat currency. As a result, it is not easily manipulated. Real money is also resistant to inflationary forces. Unfortunately, being a fiat currency is how the dollar loses reserve currency status.

Future of the US Dollar

It is unclear what the future holds for the US Dollar in the long-term or whether the dollar loses reserve currency status. The US Dollar remains as the world reserve currency; however, it’s role in this position may be for a limited time. Unfortunately, gold and silver do not support the Dollar. Yet, the strong US economy support its world reserve currency status. Financial analysts believe that so long as the US economy is strong, the US Dollar will remain strong. However, US debt and trade deficits continue to grow, putting pressure on the US monetary system.

Wrap Up: Dollar Loses Reserve Currency Status

Hopefully, we have explained why the dollar loses reserve currency status in this article. As the US Dollar becomes weaker over time, with nothing like gold or silver backing it, the chances that the dollar loses reserve currency status will increase. As a result, investors must take action now to keep investments safe.

Want to learn more about money and the Federal Reserve Banking System? Check out G. Edward Griffin’s “The Creature From Jekyll Island.”

If you want to learn about the history of money, check out Mike Maloney’s free “Hidden Secrets of Money” video series. It’s a goldmine of information that can help you better understand money and where the world stands today financially. Highly recommended!

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Disclaimer:

It is important to note that Piggy Bank Coins does not provide financial advice. We don’t endorse or recommend any financial investments. Instead, we provide information for educational purposes to those seeking knowledge regarding personal finance. However, in the spirit of transparency, note that the author is an investor in cryptocurrencies, precious metals and some equities.

In addition, The Federal Trade Commission (FTC) requires that Piggy Bank Coins disclose to readers that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. Moreover, we try our best to keep things fair and balanced, to help you make the best choice for you.

Categories
Cryptocurrency

Dollars To Bitcoins

We discuss the easiest way to convert dollars to bitcoins. In addition, we discuss cryptocurrency investment options, including recommendations on cryptocurrency projects you should be watching and explanations of some terminology in the cryptocurrency industry.

If you are thinking about cryptocurrency investment and converting dollars to bitcoins, there’s never been a better time. For example, Bitcoin has been increasing in value for more than 12 years and there are many other cryptocurrencies that may be worth looking at. In this article we will explain the easiest way to convert dollars to bitcoin, as well as discuss cryptocurrency and blockchain.

First, with a $1 Trillion market capitalization, Bitcoin is the oldest and most trusted cryptocurrency investment. In fact, many other cryptocurrencies are like Bitcoin. Moreover, understanding Bitcoin is fundamental to understanding cryptocurrencies and cryptocurrency investment.

How to Convert Dollars to Bitcoin

In short, the easiest way to convert dollars to bitcoin is to open an account with a reputable exchange, such as  Coinbase or Binance. We don’t make any specific recommendations here on the best crypto exchange because it may vary depending on where you live. For example, Binance is a popular exchange worldwide, but some US States do not allow American Citizens to use Binance. In that case, you could use another exchange like Gemini or Coinbase. Furthermore, once you open the account, you simply send money from your bank account directly to the crypto exchange. Then you use their trading platform to purchase Bitcoin.

However, prior to getting started talking about cryptocurrency investment, we should understand some cryptocurrency terminology. For example, we’ll look at the terms “Bitcoin”, “cryptocurrency”, “block chain.”

What is Bitcoin (BTC)?

Bitcoin is a Peer-to-Peer Cryptocurrency Payment System Founded in 2009

Bitcoin is an open-source, block chain-based technology that was designed as a peer-to-peer payment system. It is designed to be a decentralized electronic payment method that can be conducted semi-anonymously among individuals. As well, Bitcoin is digital cash. The other intent of Bitcoin is to solve the double spend problem that had been encountered in the past with electronic currencies.

It uses block chain technology to maintain its function. First, for users to send and receive bitcoin, the block chain depends on miners. Second, miners use special computers to complete complex calculations which build blocks on the block chain. As a reward, miners are paid in Bitcoin upon completion of each block.

The world first learned about Bitcoin in 2009. It is unknown who invented bitcoin; however, a developer named Satoshi Nakamoto (probably a pseudonym) released a 9-page white paper entitled, “Bitcoin: A Peer-to-Peer Electronic Cash System.” As a result, the Bitcoin white paper describes Bitcoin’s purpose and how it works.

It was the first cryptocurrency to experience widespread use and adoption. However, Bitcoin’s use case has evolved over the years from a peer-to-peer payment method to a store of value model. For instance, many Bitcoin users hold bitcoin much like you would hold silver or gold in an investment portfolio.

What is Cryptocurrency?

Cryptocurrency is a digital asset. Payments occur between individuals on the internet. In addition, the best cryptocurrency uses cryptography to secure transactions on a network. Block chain technology is part of what makes the network secure. Miners use powerful computers to solve advanced equations in order to earn Bitcoin or other cryptocurrencies. Finally, mining makes the distributed ledger network secure. In addition, it ensures that transactions are complete. As a result, no one can cheat the system.

What is Block Chain?

The block chain stores data on a public database. The blocks of information include transaction data, participant data and distinguishing data. Each block of data stores thousands of transactions under cryptographic lock and key. A network of computers operates the blockchain. They make the network run and keep it secure by solving algorithmic hashes. The network computers earn cryptocurrency for their work. The bitcoin block chain technology uses a distributed ledger. Bitcoin’s network security hinges on the distributed ledger that the network participates in.

What is the Best Cryptocurrency?

The best cryptocurrency is the most secure, has the strongest user base, has been operating the longest. In addition, it has the highest capitalized market. By this standard Bitcoin is the best cryptocurrency.

Bitcoin Security

The Security of Bitcoin is Based Upon a Strong User Network

The security of the Bitcoin network has proven itself time and again for converting dollars to bitcoins. Over the 12-year history of Bitcoin there have been many challenges to the network that could have spelled failure. However, Bitcoin lives on. However, it’s important to note that many of the most infamous Bitcoin hacks have been of the exchanges that transact Bitcoin. As a result, experts have faulted the exchanges lack of security for the hacks and not the Bitcoin network itself.

Block chain networks like Bitcoin handle transactions of cryptocurrency on a distributed ledger. This means that the mining computers that run the network share information on the ledger and ultimately, must reach a consensus. As a result, the more computer users that operate on the network means the ledger becomes more distributed among users. This inherently creates security and decreases the chances of one hacker group to gain control of the network. This also ensures that Bitcoin is a solid cryptocurrency investment.

One other security factor is the price of Bitcoin. Bitcoin’s network was fragile and was new. From the start, Bitcoin had few users, low capitalization and a weaker network. However, currently Bitcoin price is approximately $30,000. Hacking the Bitcoin network today is nearly impossible. The network is impenetrable without $Billions in capital.

Community Support

Bitcoin has a long history of community support. It has a growing community and network of individuals who believe in the project and who contribute to Bitcoin’s success. The Bitcoin community includes people like crypto enthusiasts, coders, technology developers, Bitcoin users and block chain startups. Ideas are shared on Reddit and Telegram, two popular Bitcoin communities.

$1 Trillion Market Capitalization of Bitcoin

The total market capitalization of Bitcoin is around $1 Trillion dollars and growing. Bitcoin has always been the dominant cryptocurrency in the market and remains so. Moreover, its market dominance is approximately 60% against the other cryptocurrencies. Additionally, approximately $6 out of every $10 in the cryptocurrency market is used to purchase Bitcoin.

Bitcoin Continues to Grow

There are a couple of things to understand about Bitcoin growth. First, Bitcoin is growing in popularity and use worldwide. Users are adopting Bitcoin as a store of value like gold and using it as a payment method in places where banks don’t exist. Second, Bitcoin is growing in price.

When users began mining Bitcoin on laptops in 2009, it had little value. Yet, today one Bitcoin can be exchanged for $30,000! Around 2020, billions of Dollars of institutional money began to flow into cryptocurrency investment. People world-wide have been converting dollars to bitcoins for years.

Examples of Institutional Money Investments in Bitcoin (converting dollars to bitcoins):

The list of investors and cryptocurrency investment continues to grow each day.

Other Cryptocurrencies to Consider

Here are some other cryptocurrencies that are worth looking at more deeply. Although Bitcoin is the most dominant and most secure cryptocurrency, there are many other cryptocurrencies that have strong security and strong use case value. A cryptocurrency investment portfolio may include other cryptocurrencies.

Ethereum (ETH)

A Block Chain Project That Uses Smart Contracts to Power Other Projects

Ethereum is an open-source, decentralized block chain project. Smart contracts are one thing for which Ethereum is known. It provides open access to money, via the Ether cryptocurrency coin (ETH), and technology, exemplified by the thousands of applications that are operating on the Ethereum network. The ETH coin of Ethereum is second only to bitcoin in market capitalization.

Ethereum uses a payment system for ETH (Ethereum token). In addition, it implements smart contracts and allowing whole new projects to run on top of the Ethereum block chain. For example, “CryptoKitties” was launched in November 2017. CryptoKitties was a decentralized application. It is a digital collecting and trading app of virtual felines that works on Ethereum.

Monero (XMR)

Created in 2014 from a fork in the Bitcoin block chain, Monero is a privacy coin. Monero uses what it calls an “obfuscated public ledger” which makes transactions of Monero private. Moreover, Monero is a tested privacy payment method. The project has longevity and a working record of privacy.

Monero gets a bad reputation at times. For example, it has been used on the dark web as an illegal payment method. However, it should be noted that paper currency such as the US Dollar can also be used for illegal purposes. Privacy for legal transactions is an important aspect for money and Monero is the foremost privacy cryptocurrency on the web.

XRP (XRP)

XRP is a currency that operates on a digital payment platform known as RippleNet. The company known as Ripple operates XRP. The currency is not technically a cryptocurrency and doesn’t operate on a block chain. Instead, XRP is a centralized, distributed ledger technology. XRP was designed as a payment system. It is considered to be a competitor to the SWIFT payment system. The SWIFT system is used by banks worldwide.

Chainlink (LINK)

Developed in 2017, Chainlink is a decentralized network that connects smart contracts with real world data. The Chainlink decentralized oracle network is operated by node operators. Operators that maintain nodes are paid LINK cryptocurrency. The nodes connect the system like links in a chain. Chainlink runs on the Ethereum network and plays a critical role in execution of smart contracts. It is one of the new rising stars of the cryptocurrency revolution.

Polkadot (DOT)

Another new rising star in the cryptocurrency space is Polkadot. The Web3 Foundation created Polkadot. Its primary function is to facilitate the operation of block chains together. The DOT coin functions in three ways: staking, bonding and networking. Finally, Polkadot contains special tools like specialization, scale and inoperability which act as catalysts between block chains.

Binance Coin (BNB)

Binance coin is a utility token. It is used to pay for Binance exchange fees. It also helps power the Binance decentralized exchange (DEX). The Binance coin is a deflationary coin. It is burned frequently by Binance. Part of the reason that BNB is so popular and successful is due the success of the Binance exchange.

Cardano (ADA)

Named after Gerolamo Cardano, a 16th century Italian polymath, the Cardano project began in 2015. It is an open-source software project. Moreover, it innovates the design of cryptocurrency. Cardano has a long-term plan called the Road Map. Cardano’s most notorious feature is its implementation of peer-reviewed research. Research and peer review are a part of project development. It has a $3 Billion market capitalization.

A team of academics, researchers and developers managed Cardano. They focus on solving cryptocurrency problems. Moreover, Cardano doesn’t focus on one use case scenario for cryptocurrency; instead, it appears to be tackling many problems at once, such as currency, proof of stake, smart contracts, scalability, security and even scripting. In addition, Cardano uses the delegated proof-of-stake method to maintain the network functionality. This is different because it is more efficient for electricity consumption.

Upside of Owning Cryptocurrency

Owning Cryptocurrencies Requires Belief That They Will Save A Failing System

Owning cryptocurrencies requires that you have a future vision that is radically different than our current banking system. In addition, cryptocurrency is inherently risky and volatile for investors. However, many believe that cryptocurrency investment is a vote for monetary freedom and independence from governments.

Bitcoin doesn’t require using a bank; the bitcoin holder is the bank. Making border-less payments between friends became easier and more private. In addition, Bitcoin is deflationary, with only 21 million Bitcoins available for use. And, if you are starting to have doubts about government money printing and overspending, then Bitcoin is an obvious candidate for safe haven status.

Bitcoin Exchanges and More Information

Hopefully this article has helped you understand cryptocurrency investment and how-to converting dollars to bitcoins. Several exchanges buy and sell cryptocurrency. Binance, Gemini, Kraken, Coinbase and so many more. Moreover, please do your research if you decide to move forward with cryptocurrency investment. There are many scams in the crypto industry that are searching for an easy mark. Finally, if you want to learn more about Bitcoin and cryptocurrency, one place to start might be Investopedia.

Future Predictions

It seems clear that in 2021, Bitcoin will begin its next phase of expansion and adoption. As a result, Bitcoin’s price will likely go much, much higher. In fact, record numbers of investors are converting dollars to bitcoins.

Anthony Pompliano and Max Keiser, two well-known investors in the Bitcoin space believe that Bitcoin price will exceed $100,000 in the next few years. Investors like Mike Novogratz and Chamath Palihapitiya believe Bitcoin price will go higher. In fact, their predictions are $400,000 and $1,000,000, respectively. The investors mentioned are millionaires and billionaires. They clearly understand money and markets. As a result, their predictions are very serious.

Wrap Up of Cheapest Way Convert Dollars to Bitcoins

Hopefully this article has helped you better understand bitcoin, cryptocurrencies and the cheapest way convert dollars to bitcoins. Although there are many ways to purchase bitcoin, the cheapest way convert dollars to bitcoins is by getting it on Coinbase Pro. Coinbase is a trusted, secure source and is definitely the cheapest way convert dollars to bitcoins. It’s also quite easy to buy Bitcoin.

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Disclaimer:

It is important to note that Piggy Bank Coins does not provide financial advice. We don’t endorse or recommend any financial investments. Instead, we provide information for educational purposes to those seeking knowledge regarding personal finance. However, in the spirit of transparency, note that the author is an investor in cryptocurrencies, precious metals and some equities.

In addition, The Federal Trade Commission (FTC) requires that Piggy Bank Coins disclose to readers that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. Moreover, we try our best to keep things fair and balanced, in order to help you make the best choice for you.

Categories
Real Estate

Home Buying Power

We will discuss home buying power and how it will affect your ability to buy or sell a home. In addition, we will talk about the current real estate market and trends for the future.        

In many ways, home buying power is synonymous with purchasing power. When the US Dollar is strong and inflation is kept in check, your home buying power is strong and you get more for your money.

What is purchasing power?

“Purchasing power is the value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing power is important because, all else being equal, inflation decreases the amount of goods or services you would be able to purchase.”

Investopedia

Currency Inflation

One thing that significantly affects inflation and home buying power is money printing. When the US Treasury and the Federal Reserve Bank coordinate to print large amounts of money, it causes inflation. Inflation is simply an increase in the money supply. The bigger the money supply, the less the money in your wallet is worth. Moreover, inflation is a hidden tax. As a result, money you have in your bank account loses home buying power when money is printed by the government.

On March 23, 2020, it was announced that the US Government would be giving out stimulus checks to Americans. In addition, they planned to give money and loans to businesses hurt by the COVID-19 epidemic. Almost overnight, approximately $2 Trillion in loans and grants were printed out of thin air. At the same time, home buying power decreased. As a result, the internet went viral in creating money printing memes. One of those memes was the now infamous “money printer go brrrr” meme.

Consumer Price Index

According to the US Bureau of Labor Statistics, the consumer price index has increased 1.3% in the past 12 months (before seasonal adjustment).

“The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available.” -The US Bureau of Labor Statistics, Definition of Consumer Price Index (CPI)

A consumer price index value of 1.3% seems reasonable for 2019-2020. If inflation or the CPI were only 1% per year, that means that in 100 years one US Dollar would lose about half its purchasing power. For example, $100 in 1920 would only purchase $50 worth of goods in 2020. However, real inflation for items we buy every day is much higher. In addition, we’ll soon see what the real inflation values are, and they are not pretty. All of these measures hurt your home buying power whether you realize it or not.

Inflation Calculator

The US Dollar Has Declined in Purchasing Power Since 1913; The Stated CPI Does Not Reflect Real Price Increases

In addition, the US Bureau of Labor Statistics provides a handy Inflation Calculator. Using their calculator, you can estimate what home buying power (based upon inflation) is today compared with years past. For example, $10 in 1960 is equal to $88.71 today. That means that in the 60 years prior to 2020, the dollar has suffered 887% inflation over time.

Since the Federal Reserve Bank was formed in 1913, the dollar has been in steady decline. Moreover, the dollar’s purchasing power (aka, home buying power) has decreased dramatically since 1913. For example, using the US Bureau of Labor Statistics CPI calculator, the US Dollar has lost approximately 96% of its purchasing power since 1913. Finally, this is an alarming statistic that shows how home buying power can fall.

Home Buying Power Changes in the Past 60 Years

Food Prices Have Lower Inflation Values; Housing Prices Have Increased Dramatically in 60 Years

Let’s look at how home buying power has changed and some specific examples of prices in from 60 years ago (1960).

According the website 1960s Flashback, in 1960 one US Dollar could purchase:

  • 25 first-class stamps for $1
  • slightly more than 3 gallons of gas for $1
  • nearly 2 dozen eggs for $1
  • 2 gallons of milk for $1

First, the price of a new home in 1960 was approximately $16,500. According to The Ascent, a family home costs $280,600 in the year 2020. As a result, this is a 1700% increase in home prices from 1960. It seems clear that a 1700% increase in 60 years is an outrageous assault on home buying power.

Using the US Bureau of Labor Statistics provides a handy Inflation Calculator, we can see that the US Dollar has become weaker. On average, goods and services are (on average) 887% more expensive today, compared with 1960. Specifically, one US Dollar today has lost approximately 89% of its purchasing power since 1960.

Can You Purchase a Home with One Year’s Salary? 60 Years Ago, You Could

In Mike Maloney’s video series, “Hidden Secrets of Money: Episode 6”, he discusses the wealth distribution cycle. As an example, Mr. Maloney displays his father’s 1955 tax return. His father was an auto parts store manager in Salem, Oregon during this time. For instance, he earned approximately $9,600 per year.

What’s interesting is the average home cost during this time period in comparison with his salary. According to US Census Bureau data, the median price for a single-family home in Oregon ranged between $6,800 in 1950 and $10,500 in 1960. Moreover, his father’s annual salary was almost equal to the median home price during this time. Now, consider the average salary today and the price of homes. In contrast, could you purchase a home with your annual salary? Clearly things have changed and the home buying power for Americans has fallen significantly.

Where Should I Buy a Home?

Shifting Populations: People are Leaving the Big Cities

It’s important to understand that real estate prices are likely going to decrease in the near future. Namely, the reason for this is that demand will begin to shrink to reflect a weak economy. In addition, migration will slow. However, there will be winners and losers in the market short term. For example, it appears that in the short term, a divided real estate market may present itself. In addition, keep in mind that each city has its own real estate market that varies.

Current data being reported in the media shows people leaving larger coastal cities and going to smaller inland cities. For example, Californians have been moving out of California to places like Washington, Arizona and Texas in record numbers. This is not a new phenomenon and the trend appears to be gaining speed.

As a result, larger coastal cities like Los Angeles and New York City are seeing reductions in demand for real estate as residents leave the cities permanently. In turn, smaller cities like Phoenix and Las Vegas are experiencing higher demand for real estate as residents move in from the coastal cities.

It appears that in the short term, cities where people are moving to (like Las Vegas) may see higher prices during the coming real estate bubble deflation. The worst-case scenario for cities receiving the influx of those moving from elsewhere would be that property values would remain steady.

Juxtaposed to this phenomenon, larger cities are seeing an increase in available real estate, causing supply to outpace demand. As a result, prices are already dipping lower in cities seeing a mass exodus.

Are You in a Growing or Shrinking Market?

The lesson here is that in order to make logical real estate market predictions for your home market, determine whether you are in an area where people are moving to or from. For example, if you live in Phoenix, Arizona, you are probably in a strong market that is attracting Californians. As a result, prices will likely be stable or even positive in the near term.

Now, one other caveat to consider is the state of the economy currently. Unfortunately, unemployment rates are high the US. Higher unemployment rates are negative for home buyers and are typically seen as a harbinger for decreased demand. As a result, unemployment may cause a decline in home buying nationwide. But we still haven’t answered the question of where the best place to buy rental property might be. Let’s take a closer look at demographics.

Demographic Changes

In “The Demographic Cliff” by Harry Dent, it is noted that the baby boomer generation (“Boomers”), those born between approximately 1946-1964, are retiring now. As a result, these baby boomers will be down-sizing from larger homes to smaller homes and buying vacation homes.

Prior to the COVID-19 Pandemic people were already beginning to shift in where they lived and how they lived. Now, the changes in living patterns and demographics have been accelerated. In general, more people will move out of bigger cities and move to areas with less dense populations. For example, people are moving out of cities like Los Angeles and moving to places like Idaho.

Individuals are selling expensive homes and flats and buying more affordable properties to replace the high priced, big city real estate. Boomers are selling their large family homes and moving into smaller, more affordable homes.

What to Expect: Future Home Buying Power

Hopefully we have shed some light on your understanding of home buying power. Clearly, inflation has had a significant impact on prices over the past 100 years. The purchasing power of the US Dollar has declined significantly over that period. Moreover, the past is never a good indicator for what may occur in the future. However, in this case it seems clear that inflation of the Dollar will continue. We can expect more inflation in the United States and expect the US Dollar to weaken in its home buying power over time.  However, with low interest rates, it still may be a good time to purchase a home.

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Best Budget Planner

Disclaimer: It is important to note that Piggy Bank Coins does not provide financial advice. We do not endorse or recommend any financial investments. Instead, we provide information for educational purposes to those seeking knowledge regarding personal finance. However, in the spirit of transparency, note that the author is an investor in cryptocurrencies, precious metals and some equities.

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