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David Stockmans Contra Corner
54 Cent Dollars Ain’t No Bargain

54 Cent Dollars Ain’t No Bargain

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david stockman
Jul 13, 2023
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David Stockmans Contra Corner
54 Cent Dollars Ain’t No Bargain
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No, the 3.0% headline inflation rate reported for June isn’t anything to write home about. Let it persist for just two decades and today’s dollar would be worth only 54 cents. Even with a healthy nest-egg, you wouldn’t want to be retiring at age 65 under that scenario.

Nor would you want to be a chump and put away cash for a rainy day. During the 14.5 years between January 2008 and June 2022 there was not a single month in which the yield on one-year US Treasuries reached 3%, and the rates on equivalent maturity bank CDs were even lower. So if the intermediate past is any guide, saving money with inflation at the June Y/Y headline rate would mean getting poorer most of the time.

Yield On 1-Year UST, 2008-2022

Yet the Wall Street gamblers and the Washington Keynesians alike are now insisting that the Fed is nearly done. Just one more teeny rate hike (25 bps) for the sake of “credibility”and the Fed is finished for this cycle—even if it takes many more quarters or even years to reach the Fed’s inflation “goal”.

Then again, anyone vaguely familiar with longer-term monetary history will find the very idea of a central bank inflation “goal” passing strange. In days of yore, the Fed didn’t even have an inflation target because it was taken for granted that there would be no inflation over any reasonable period of time.

In fact, that was actually the case much of the time. For instance, the inflation index in October 1946 was exactly where it had stood 26 years earlier in June 1920. That is, zero cumulative inflation for a quarter century.

And yet and yet. That quarter century absence of net inflation did not usher in an era of sustained economic stagnation, to say nothing of complete collapse, as today’s Keynesian inflation-targeters insist would happen absent their money-pumping ministrations. In fact, not withstanding the Great Depression, real GDP more than doubled during that period, rising by an average of 3.1% per annum.

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