Has the Dollar Really Lost 97% of it's Value?

Posted by Randall A Reinwasser on Monday, April 23, 2012 Under: Economy
This morning on CNBC's Squawk Box, guest host Ron Paul stated that the U.S. dollar had lost 97% of it's value since the Federal Reserve came into existence.  In the following segment, one of the CNBC anchors asked guest Stephen Roach if that 97% figure was correct.  Roach, who is an economist, retorted by saying, "No, not even close. I would challenge the congressman's numbers. How we lost 97% of the purchasing power of the dollar, relative to what?"

I happen to enjoy Roach's writing and was surprised he challenged Congressman Paul on what I thought was a well-known statistic.  To check and see who was right I went to the Bureau of Labor Statistics, Consumer Price Index historical survey which goes back to 1913, which just happens to be the year the Fed began operating.  As you can see in this table, in 1913 the CPI was 10 and today it's 229.4.  This means the cost of a basket of goods has gone up by 22.94X in the last 99 years.  To measure the loss of the dollar's value you simply divide 1/22.94 = .044 X 100 = 4.4%.  In other words, the dollars has just 4.4% of it's value remaining and 95.6% of it's value has been lost.  While Ron Paul may have been off by 1% in his comment, Roach was really off-base by saying "No, not even close".  As usual, Ron Paul is right.

In : Economy 

Tags: "ron paul"  "stephen roach"  "squawk box"  "ron paul squawk box"  cpi  "cpi historical data"  "how much value has the dollar lost" 

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