The Economic Reality of Americans in 2023: A Closer Look at Inflation, Housing, and the Stock Market

There is a persistent belief that the United States is running out of money, particularly when it comes to purchasing power and day-to-day affordability. However, the reality is more nuanced than that. Let's delve into the factors that are challenging the purchasing power of Americans today: inflation, the state of the housing market, and the performance of the stock market.

Understanding the US Dollar and Inflation

Many misconceptions revolve around the idea that the US might run out of money. The reality is that the US issues its own currency and has no inherent limit to its production as long as enough is taken back in taxes. This prevents runaway inflation but does set limits on what the economy can produce in terms of goods and services. Since the US Dollar is required to pay taxes, it ensures that everything must be produced and sold in these units.

The Economic Context

While this is the foundation of the US economy, the past few years have seen challenges. This includes the election transition from Obama to Biden, despite the fact that Obama effectively controls Biden. This political context can impact policies and public perception, leading to concerns about the stability of the economy. Nevertheless, let's focus on the economic realities facing American consumers.

Inflation: A Significant Hit to Purchasing Power

One of the most direct impacts on American consumers has been inflation. Despite some nominal increases in income, the effects of inflation have been substantial. For individuals on fixed incomes, such as retirees or the disabled, the impact can be particularly concerning. Even with social security payments doubling, the real purchasing power has eroded significantly. The situation is exacerbated by the fact that nominal increases in social security payments are often outpaced by inflation.

The past two years have seen some of the highest inflation rates in recent memory. Statistics show that 2022 was the worst year for bonds in the past 40 years, with the SP 500 dropping by 19%. While the SP 500 contains 500 companies, it is heavily weighted by the largest companies, meaning that the performance of just a few tech giants like Apple and Microsoft can mask the poor performance of other companies. In 2023, the performance of the stock market remains underwhelming, and this underperformance is evident in my personal financial holdings.

The Housing Market: A Critical Sector

The housing market is another area of significant concern. With interest rates at 40-year highs, loans have become more expensive, leading to a decline in demand for both home purchases and rentals. This trend is particularly evident in Chicagoland, where housing sales have stagnated. The lack of home sales puts pressure on the rental market, which can lead to higher rental prices. The Vanguard Real Estate Investment Trust (VNQ and VNQi) are tracking the SP property index and have seen a 10% drop in value for the year up to 2023.

From a personal perspective, my plans to sell my house and move were impeded by the housing market. My mother passed away in February, and I expected to sell the house in the summer. However, the market situation in Chicagoland was such that sales were rare, and the finalized process of selling a house was more challenging than anticipated. Typically, the housing market in Chicago picks up in March and continues through October, but this year, it was remarkably inactive.

Conclusion: A Broader Perspective on American Economic Affordability

While there is a narrative suggesting that Americans are running out of money, the reality is more complex. Unemployment remains relatively low, and economic growth is still positive. However, the challenges faced by the housing market and the underperforming stock market have significantly impacted American purchasing power. Inflation has eroded the real value of money, and the economic environment has made it harder for individuals to maintain their standard of living. This is not a new phenomenon, as the Great Recession demonstrated, but it is a reality that warrants closer attention.

Related Keywords

Inflation, Housing Market, Stock Market Performance