Leone’s Money Monitor Monthly for the Month of March 2010
Hi all, my name is Ed Leone. I am a clinical practicing dentist over these last 38 years (need a dentist–go to leonedmddentalcare.com) who has been interested in financial matters for the greatest extent of my working career. In 2005, I earned a professional studies certificate in Financial Planning and in 2009 and MBA in Financial Planning. The purpose of this blog is to share information and ideas regarding our currency, politics, economics, investments and planning. Your input, ideas and questions are welcome at leonee@vzw.blackberry.net.
Let’s start with an examination of the key element in the title of this blog, “Money”. What is money and what does it mean to us. “The History of Money” written by Jack Weatherford, tell us that it is a medium of exchange. But it has several internal characteristics throughout history which we must also consider. Money should represent a store of wealth and be a unit of accounting in addition to its purpose as a medium of exchange. Commerce has existed though much of the history of civilization. For centuries, this commerce was conducted in the form of barter. As civilization became more productive and industrially specialized, other forms of exchange had to be developed which were easy to transport and recognized as a trusted form of compensation for goods and services offered. Our US currency was developed shortly after the revolution and separation from England. It has up until 1971, when President Richard Nixon and the US Congress removed the dollar from the gold standard, been back by silver and then gold as a store of wealth. Since 1971, the expression of wealth behind the US dollar has been the government’s power to tax the citizens of our country. It is my opinion that since August of 1971, our legislative and executive branches of government have not been the disciplined stewards of our currency which they need to be. They appear on many issues to use political expediency in making fiscal judgements rather than economic principles which would benefit the economy and US citizens. From time to time, they look like the gang that can’t shoot straight. This behavior has cost us dearly in the form of the purchasing power of our currency and its value in the exchange markets for currencies of foreign governments over recent years.
If you had a dollar in 1972, it had a purchasing power of a little less that 20 cents in 2008. This means that your compensation had to be 5 times greater in 2008 than it was in 1972 in order to have the same purchasing power for both periods. Have you been able to keep up with this inflation factor? In 1971, US GDP was $1.2 trillion and in 2008, $14.3 trillion. It appears that economic growth has more than kept up with inflation. In 1971, the Federal Budget was $230 billion and in 2008, $2.9 trillion. Government expenditures have certainly kept up with inflation and expanded to a great extent beyond due to expansion of government programs. In 1971, the Federal Budget was 19% of GDP and in 2008, it was 20.3%. These numbers do not include deficit spending by government. This is clearly where budget discipline breaks down. It is so much easier to borrow or print money to satisfy approved programs than it is to reevaluate and prioritize them or institute tax increases on the citizens to cover these costs. How do we as the voting citizens of this country instil within our elected officials the need to be good stewards of our currency in order to avoid financial disaster as the future unfolds? Have we arrived given current financial conditions?
For the record as of Feb 28th, 2010:
Dow 10,325.26
NASDAQ 2,238.26
S&P 500 1,104.49
Suggested reading: The History of Money by Jack Weatherford
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