What You Are Up Against

The Bureau of Labor Statistics reported last Friday that consumer prices increased 0.6 percent in August.  Over the last 12 months, according to the BLS, consumer prices increased 1.7 percent.  Nonetheless, if you’ve paid bills or bought anything lately you know the government’s inflation numbers are merely propaganda.

When inflation is calculated the way it was measured in the 1980s, before government statisticians began fudging the numbers through hedonic pricing adjustments and other nonsense for political reasons, the consumer price index is rising by 9.3 percent annually.  Obviously, an inflation rate of 9.3 percent is much greater than an inflation rate of 1.7 percent.

This vast difference is problematic…particularly for low income earners living pay check to pay check.  They may now be finding that there pay check runs out long before payday.  But, in addition to low income earners, an inflation rate of 9.3 percent is problematic for savers and fixed income earning retirees.

For example, when savers put their money in a Certificate of Deposit, currently paying just 0.09 percent annually, they’re robbed of about 9.21 percent of their purchasing power in just one year.  Even worse, a typical savings account is currently paying a yield of just 0.02 percent annually.  That amounts to a loss of 9.28 percent.

You can see how money supply inflation results in poverty inflation.  Moreover, its occurrence allows governments to secretly confiscate the wealth of its citizens.  Here’s how…

A Near Insurmountable Mountain of a Problem

Twentieth century British economist John Maynard Keynes said it best in his 1919 work titled, “The Economic Consequences of the Peace”…

“By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.

“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency.  The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

Make no mistake.  Policies of inflation are the programs of most governments these days.  What’s more, they’re counting on engaging the hidden forces of economic law to pull this ruse over on their populaces.

But even if you’re one of the few to diagnose the symptoms of money supply inflation, it presents a nearly insurmountable mountain of a problem.  Doing nothing means you’ll become poorer.  The only ways to maintain your current standard of living is either to dramatically increase your income or to invest your savings very wisely.

Both of these are not easy.  They take hard work, persistence, perseverance, risk, and fortitude in the face of apparent failure.

What You Are Up Against

Of course, government inflation is the reason a $100,000 annual income doesn’t buy much over a middle class lifestyle for a family of four in most big cities these days.  Unfortunately, most people aren’t keeping up with inflation.  In fact they are falling far short.

According to a Census Bureau report, released last week, the real median household income in the United States in 2011 was $50,054.  This is a 1.5 percent decline from the 2010 median household income and the second consecutive annual drop.

This means, households are losing ground each year.  They’re becoming poorer.  They’re not building wealth.  They’re burning it.

These days, according to President Obama and Presidential candidate Mitt Romney, a family income up to $250,000 a year is middle class.  For many this may seem like an abundant income.  But with government inflation this will soon be the median.  Here’s why…

In 1961, exactly 50 years before last week’s report, the Census Bureau reported that the median family income was $5,700.  If you add a zero to the end of the 1961 number, it puts you a little over the 2011 median income number.  Naturally, in 1961 an income of $25,000 would have seemed like an abundant income.  But by 1983, just 22 years later, $24,580 – about $25,000 – was the median family income.

Based on this rate of change, in just 22 years – or by the year 2034 – $250,000 will be the median family income.  While the year 2034 seems like a long ways a way, it will be here before you know it.

Do you plan on still being alive in 2034?  Will you be retired?  Will people be dependent on you?  If so, you’ll need an income of $250,000 per year to live a median family lifestyle.  How will you achieve this?

Assuming the 10-Year Treasury note is paying 2 percent – it’s currently yielding 1.87 percent – you’ll need a pile of approximately $12.5 million to get an annual return of $250,000.  Taxes, remember, will take about $75,000 of this income.  Clearly, scaling this mountain will be the task of a lifetime.

This is what you are up against.


MN Gordon
for Economic Prism

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