To understand the forthcoming blog post, you need a minimal understanding of inflation mathematics.
The world I traded in back in the mid-1960s was a world miles away from where we are now. Firstly, I will show you how the exchange rates against Sterling have changed over those 47 years.
As you can see, the pound has suffered quite substantially against all of these currencies – not too bad against the Norwegian Kronor and the US$ but terribly against the Swiss Franc and the Deutsche Mark. The rot started back in the early 1960s and built to a peak in the late 1970s and early 1980s until inflation was got “sort of” under control.
It is difficult to understand the prices of things in those days. Houses sold for £5,000 to £6,000, cigarettes were 20p – 30p a packet and petrol was around 6/- (30p a gallon – yes gallon – not litre – we didn’t understand litres in those days). To understand them, you must know the inflation multiplier for use between 1967 and now. According to my information this number is 15.78. This means that all the above prices have to be multiplied by that to get a 2014 equivalent. This results in the following:
This makes houses and petrol look cheap but allowance needs to be made for salaries at the time. As a 7 year experience bank clerk working in the dealing room, I was earning £800 p.a.. This equates to £12,650. I would guess that someone with 2 years trading experience now would be earning at least £40,000 p.a. Using this as a multiplier the numbers come out like this:
Next time, I will talk about how all of this is relevant to our trading on behalf of one major customer and the Bank of England.