Unlike the 1970s when wages soared amid skyrocketing inflation, the 2000s have witnessed benign wage growth.
Americans continue to lag behind official consumer price data as soaring oil and food costs put the average wage earner further behind the inflation curve. In a nutshell, wages are being devoured by rising costs since 2007. Officially, the government states trailing 12-month inflation is 4.2% through May; I say it’s closer to 8% or more.
Employees are not demanding higher wages thus far, and that’s a good sign for inflation since labor costs have historically caused inflation to stir -- even more than high food and energy prices.
After counting inflation, U.S. workers actually earned less in May than in April and substantially less compared to a year ago. Versus May 2007, real or inflation adjusted wages declined 1.2%.
But the news gets even worse…
Compared to most foreign currencies and commodities, the U.S. dollar has plunged since commencing a bear market in 2002. Americans, earning their income in dollars, find themselves buying less just about everywhere in the world and paying more for most goods and services, except consumer electronics and durable goods.
For Americans and even Canadians alike, which until recently also held a banana currency, the long-term decline of dollar-based currencies is a secular event. Americans and Canadians tend to hold their retirement plans in dollars; mortgage(s) are in dollars; insurance policies are denominated in dollars and other assets also held in dollars. Just how much of a lousy currency do you need?
Having said all that, I’d be reluctant to dump American dollars today at these low levels, especially against the overvalued euro and other European currencies. But I’d still be selling dollars for most Asian currencies, commodities and, especially, gold.
Inflation is eating away at employees’ wages. This phenomenon is global. Paper or fiat currencies have failed to protect investors’ long-term purchasing power against the crippling effects of inflation.
Inflation is now running out of control in Asia, many other emerging markets and even in the industrialized economies. It’s time to seize the moment and buy gold.
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