The return on an asset is the selling price plus any income received during the holding period minus the purchase price. A dollar provides no income and its selling and purchase price are the same in nominal terms, which means it provides a return of zero in nominal terms. In real terms, the return is minus the inflation rate, which usually is a negative number. So clearly the dollar doesn't rely on revenues from current investors to provide a return to earlier investors... because it provides no such return. Therefore I don't see how it might qualify as a pyramid scheme.
You are forgetting that the FED can and has printed enormous sums of dollars for example over the last 18 months. This dilutes the real-world purchasing power of the dollar leading to increased inflation in scarce assets such as real estate, equities, and some cryptocurrencies. Wages are rising at the advertised inflation rate or a little better while all the scarce assets you would need to obtain healthcare, higher education, housing or retirement are all increasing at a rate that puts wage earners further and further behind.
This is a series of made up facts. Real wages have increased over the last 10 years in the US [1] despite the fact that the money supply has increased substantially over the same period.
Which of my facts are made up? Real wages have fallen for the past 50 years. The fact that they may have made up some ground recently doesn't change the fact that wage growth is falling behind asset price growth and the problem is only getting worse.
Also, you are measuring wage growth vs consumer price infation so ~2%. The article talks about asset price inflation which depending on how you measure it is closer to 15%.
All of them. You said wages were "falling behind" and I showed that was not the case. Now you say wages are "falling behind asset price growth" which is a meaningless statement because there will always be some asset prices that have increased more that wages have, just like there will always be some asset prices that have increased less than wages.
According to the article real wages have been climbing for the past 20 years or so and only in the last year have caught up to the average wage in 1974. I don’t believe the article states what you claim.
Based on your experience which of the following have increased in price less than wages have increased over the past N years?
- Housing / residential real estate
- Commercial/Industrial real estate
- Stocks
- Cryptocurrencies
- Healthcare
- Higher Education
The article specifically discusses asset inflation which you ignore. Consumer price inflation only applies if you live in rented housing, never aspire for higher education, never get sick or old. For the rest of us asset price inflation is just as relevant as consumer price inflation.
The data shows that, roughly speaking, real wages declined during 1970-1995 and increased during 1995-2020, so they have not been falling for the last 50 years. That was the point. Asset inflation is not an economic concept, but a concept made up by propagandists, as far as I know. For example, the stock market goes up and down randomly. It's actually impossible to predict. So what does the fact that the S&P500 has gone up, say, 20% tell us? Nothing, because it's random. Asset price inflation tells us absolutely nothing. Consumer price indexes do include housing, education and healthcare, so the argument that CPIs don't accurately reflect the actual cost of living because they don't account for these services is false. I can't tell you what my experience with prices in the US is, because I don't live in the US, and even if I did, my perception of prices would be unreliable compared actual price statistics that are collected by statisticians and economists that study prices for a living.
The dollar does rely on demand from new users of it to keep it's value for existing users, which is the same thing. Real terms are all that matter here.
You're conflating value with price. This is common, we are taught that the two are synonymous throughout our lives.
Exploring this might help you understand what I'm saying better: when people buy dogecoin, say, with dollars, they're not actually just trading dollars for dogecoin. They're using dollars as a medium through which to trade their wealth (again, not money, similar to the value vs price thing) which could be their labor, land, other property, intellect they've sold for dollars, for dogecoin. In both instances, they're trading real wealth for something that is valuable because other people want it.
It isn't about the return. It is about the fact that both liquid storage mechanisms, dollars and dogecoin, have a "value" that is only valuable because at some point someone else will wind up with it when it inevitably becomes worth nothing. For both systems, the value is solely that people want it for now, and when they no longer want it, the people left holding it are broke, and the people that traded it to them for real wealth benefit. This is a pyramid scheme.
What you're saying is that prices can be expressed in nominal terms (i.e. in units of some currency) or in real terms (i.e. in units of some other good or service, for example, "hours of work"). The same applies to returns, there are nominal returns and real returns. Changes in a variable expressed in real terms exclude the effects of inflation. [1]
Then you argue that the dollar is a pyramid scheme because people only want dollars to buy things that have real value. It's true that people only want dollars to trade them for other stuff, but, again this is not what a pyramid scheme is. All mediums of exchange that have no intrinsic value are only wanted in order to exchange them for other stuff. A pyramid scheme is not that, a pyramid scheme is an investment scheme in which all revenues come from the investors themselves. [2]
Cash cannot be a pyramid scheme for the simple reason that the revenue streams of an investment in cash add up to zero, and therefore it's not something that an investor would consider investing in in order to earn a profit. Therefore cash is not an investment scheme, and something that is not an investment scheme can't be a pyramid scheme.
Cash is absolutely used as an investment scheme, by forex traders, by people in other countries to hedge against the weakening of their currencies, by foreign governments and banks. This is encouraged by the US deliberately as an effect of the petrodollar.
Nominal terms amount to how much of your investment in dollars you lost (or gained) while holding dollars, in real terms. Real terms are all that matter.
Cryptocurrencies are also used to trade for other stuff, as is their stated purpose.
They both have the same characteristic that makes one a pyramid scheme, but somehow not the other. They're fundamentally similar assets, but for some reason one is given a special category carved out specifically for it that actually does not exist. When you take away this special status that is only ascribed to fiat currency to differentiate it for the sake of discussions like this, they're interchangeable assets that share all fundamental characteristics. All fiat currencies are speculative assets.
Now you're talking about foreign currencies. Yes, foreign currencies can be traded for speculation purposes. When a speculator invests in a foreign currency, they think that the currency will appreciate in the future. The important fact is that currencies appreciate and depreciate according to international trade and a whole bunch of other factors unrelated to speculation. The speculator does not rely on other speculators buying the currency for it to appreciate and making a profit. Therefore, speculation with foreign currencies is not a pyramid scheme. This is in stark contrast with crypto-coins, because unlike the demand for foreign currencies the demand for crypto-coins is mainly fuelled by speculation. The only non-speculative uses of crypto-coins (as far as I know, ransom payments and purchasing of illegal substances) constitute a tiny minority of the trading volume. Therefore a crypto-coin investor absolutely depends on other "fools" investing in crypto-coins at some later time in order to make profit. This is confirmed by the fact that they're constantly trying to talk other people into buying crypto-coins, which is never the case with fx speculators. When they run out fools, they will no longer be able to make a profit. And this is why crypt-coins are a pyramid scheme and international currencies are not.
