Feeling Poorer Through The Power Of Inflation

Tyler Durden's picture

Originally posted at MyBudget360.com,

You have to love how the Federal Reserve downplays inflation when they are the primary source of it with other central bankers for this monetary phenomenon. They continue to play inflation down because it gives them the power to continue to use policies that seem to only aid their banking allies while making working Americans poorer by the day. Inflation has a slow eroding power that is not readily visible since it usually takes time to work through a system. Looking at a broader timeframe however it becomes readily apparent that inflation is hitting our system hard and most working families don’t need an advanced degree in economics to understand this. According to the CPI, the overall rate of inflation since January of 2000 has been 39 percent. The Fed prefers to use the PCE Deflator measure and this only has inflation running at a 31 percent rate. But when we actually look at the cost of goods and services across the spending spectrum we realize that inflation is very much alive and well with us.


Examining the cost of goods and services since 2000

Americans eat, pay mortgages/rent, and tend to drive a lot. We also have the aspiration of sending our kids to college for a better and more educated life. When sick, we want to have access to healthcare. All of these services and goods are much more expensive since 2000. Inflation is very much alive when we look at the cost of goods and services.

Take a look at some major spending categories since January of 2000:


A gallon of gas is up 176 percent since 2000. Ground beef is up 96 percent. Your typical college tuition is up 68 percent. A new car will now cost you 55 percent more than it would have in 2000. Your average home is now up 50 percent even though we went through the biggest housing bubble our nation has faced (largely driven by cheap and dangerous banking policy). Yet the overall CPI is only registering a 39 percent increase. The Fed looks at the PCE Deflator and this is only up 31 percent. So it is no surprise why the Fed has aggressively ramped up monetary policy. Don’t think so? Look at the current monetary base:

monetary base

The jump from $800 billion to over $4 trillion is largely driven by large commercial banks offloading debt instruments to the Fed. This has done very little in helping the balance sheet of Americans but has essentially been a shadow bailout for the beleaguered banking sector.

The primary reason Americans feel poorer is that wages are simply not keeping up:

median household income

The CPI is up 39 percent while nominal wages are up 30 percent. The blue line is the most important above. That is, wages are not keeping up with the increase in the cost of goods and services and this is by the more conservative CPI measure. If you look at the Case Shiller housing measure, you will see your typical house is now 50 percent more expensive and this is the biggest expense for Americas. Your new car is up 55 percent in cost since 2000. College tuition is up 68 percent or nearly twice the rate of wage growth. Healthcare spending per capita is up 104 percent so there is no way wage growth is keeping up with this.

That is the insidious problem with inflation. Some might think that with meager wage growth that somehow they are keeping up. But the Fed has flooded the system with access to debt and this debt has largely benefitted big banks. Big investors are now using cheap debt since they are the people creating access to debt instruments (i.e., mortgages, auto loans, credit card debt) and would rather use the money on buying up real assets instead of lending these out to Americans. For example, since the housing bubble burst a large part of single family home buying has come from investors. This has driven up prices for no other reason that investors have easy access to debt created by loose monetary policy. Little benefit is derived from the public outside of more money being spent on housing with weaker wages.

Those that lived through the 1970s will tell you that inflation without real growth is problematic for an economy. Yet we have a generation that has seemed to have forgotten history. What is more problematic this time is that wage inflation is simply not to be had. So Americans again are forced to go into massive debt to purchase homes, buy cars, or simply to send their kids to college. This is why we now have $1.2 trillion in student debt while many young graduates are unable to service their debt because wages are coming from the growing low wage service sector.

When you hear that inflation does not exist, simply look at the price of goods and services over the last decade and look at your paycheck. You might care to differ.

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Hugh G Rection's picture

Nonsense! The honest media would tell me if inflation was a concern, just how they keep me up to date on the ME...<sarc off>


Magnix's picture

Not unless you buy gold - you'll be OK :-)

Hugh G Rection's picture

Warren Buffet said gold is an inferior investment to equities, and he seems like a nice old man so I'm going to buy some Sodastream to help our chosen friends out.

world_debt_slave's picture

The Oracle of Omaha is right, that is, if you are in the club, which we aren't.

LawsofPhysics's picture

...but there is no inflation...

Steve Liesman says so...


fonzannoon's picture

Leave it to Yahoo to post an article, reference china crashing, and find a chinese guy named Wang to put on the caption. Tremendous


LawsofPhysics's picture

Quick! Everyone back to the other side of the boat!!


By design Fonz.

fonzannoon's picture

I can just see the author finishing the article and sitting back in his chair very seriously and rubbing his chin and going "I need a caption....I need a wang....if I could only find a wang...."

Pheonyte's picture

Hmm, couple that with this:


Anyone else's spidey senses tingling?

FuzzyDunlop21's picture

That monetary base chart is pretty noisy. In particular the noise seems to be going from bottom left to top right

pods's picture

That is such a scary ass chart that no matter when I see it I cringe (monetary base).


LawsofPhysics's picture

Yes, there certainly is a lot of water behind that dam.


Unlike the 70's, there is no way interest rates can go up now and everybody knows it.

Pheonyte's picture

OK, so we have to have ZIRP forever, but there are plenty of voices saying that we can't have ZIRP forever and that interest rates have to rise.

Someone square this circle for me.

pods's picture

Rates rise, FED injects money through any crack it can get away doing to keep things going and everyone pretends they don't know where the new money is coming from.

Bread is 100 bucks a loaf and we all heat our houses using blubber from the People of Walmart.

(that is the optimistic approach)

The bad outlook is just north of The Road.


NidStyles's picture

As defeatist as it sounds, I would hope to die in the initial strike if there is a nuclear war. Living in a post-nuke world in a country that was hit directly just seems so damn miserable...

LawsofPhysics's picture

Interesting, get the .gov to offer "free" liposuction and sell the fat right back to those SNAP babies.


That is fucking brilliant pods.

pods's picture

Your way sounds much better than how I thought of it.
You know, "they can't run very fast" sort of stuff.


LawsofPhysics's picture

There is no monetary or political solution to resource scarcity.

Prepare for war as your circle cannot be squared.

I keep wondering what happened to all those people in the 70's who understand first hand that any inflation without wage inflation is the kiss of death for your economy.  Unlike the great depression (when people had no wages, hence, they didn't have any dollars and could not buy a damn thing) when there was room for growth, the earth is now home to 7+ billion people all demanding access to the calories that make a better standard of living possible.

Exponential equations are a bitch, hedge accordingly.

Seeking Aphids's picture

The Fed have actually been pretty straightforward about this: ZIRP forever - read my lips. The other guys are using logic - very dangerous and probably anti-American terrrist behaviour at this point in time.  Squaring circles is what they do all day in the US of A.

pods's picture

Makes ya kind of wonder where the $100+ TRILLION in promises is gonna come from if they can't keep the rise going with $17T?

Only $5 Trillion in interest due yearly on 100 at 5%.


We are going to run out of places to put new debt before we run out of oil. 

Compound interest FTMFW!



disabledvet's picture

This is the most critical point that anyone can make. Even more importantly "this is not just the USA."

"And all I got was taper" is some pretty thin gruel. Take a look at the wars flaring up everywhere though and then you'll see just what the downside of this collapse is looking like.

"Culling the herd."

ebworthen's picture

All by design.

BTW - Steve Liesman needs an ice pick in each ear.

Temporalist's picture

Who would want to ruin a perfectly good ice pick by getting shit all over it?

LawsofPhysics's picture

inflation without real growth is problematic for an economy...


This is a simple truth, here are a couple more...

infinite growth of any one species in a closed system with finite resources is impossible...

there is no, nor will there ever be a monetary or political solution to resource scarcity...

Hedge accordingly.

pods's picture

But can't we have "pretend time" and talk about how we are going to escape the universe when the sun blows by first colonizing Mars and using super fusion devices to create an atmosphere while we build super vehicles to continue the species galavanting through space?


gatorengineer's picture

One could easily argue that the monetary base is well in excess of 100T, when unfunded liabilities are counted.....  debt afterall is Money.

JailBank's picture

Pulled the first vegetables out of my first garden this weekend. Everything grown from seed. Just betting this gets a lot worse. Once the EBT crowd can't buy Cheetos and 64 pak of Pepsi in the same month that is when things will get bad.

ClassicalLib17's picture

The EBT purchases of bottled water are totally unnecessary.  I drink purified water from Lake michigan right out of the tap.  Why is this allowed?  Whatever happened to the idea of workfare?

NoWayJose's picture

There will be a run on Cheetos seeds.

I am Jobe's picture

IPHONE and IPADS are still affordable. Ask the sheeples

Sudden Debt's picture

Do people already know that you can buy a android 6 inch 8 processor smartphone with a 13 mp camera an 6gb memory for 150 dollars?

I mean... Iphones... So passé...

WTFx10's picture

Its those fuckin international muslim central bankers doing this!!!!

novictim's picture

In a perfect world the Richest folks would not be owning the debt of the poorest folks.  

In a perfect world, we would all be debt free and working hard to -all- become more prosperous.

We don't live in a perfect world.  We live in a world were the richest people on the planet inherit their wealth and their children will inherit that as well.

We live in a world were the debt of those people who earn salaries are owned by the wealthiest folks.  And the working people who subsist on salaries or hourly wages are making the same amount of money that they had earned in 1978 (!!).

When we talk of inflation, we should realize that inflation is the great EQUALIZER.  When wealth is reduced every year by inflation rates of 10-15% then the wealthiest will, year by year, find that their enormous and impossible wealth that was growing exponentially is now approaching that of the person who works for a living.

High rates of inflation are one of the three means for wealth distribution.

Inflation, Taxation, Confiscation...or else REVOLUTION.  Pick your poison or it will pick you.

LawsofPhysics's picture

Once all people are no longer constrained by ethics and morals (like today's rich) everything changes.


Happy Bastille Day!

disabledvet's picture

All paper monies must be backed by gold in a bank and all speculations will be paid for by said bank to We the People when the whole shit house goes up in flames.

Too big to fail is a fraud and crime that should be punishable by DEATH.

novictim's picture

That is right.  

Banks and finacial institutions NEVER screwed people before Richard Nixon got rid of the Gold Standard and instituted a fiat currency in 1973.

Makes sense.  /end sarc

PGR88's picture

You have it completely backwards

Inflation is not an equalizer, dumb-ass - its a the single greatest cause of wealth inequality there is.

If you own land or productive assets, you do not suffer as much from inflation.  Americans are still buying gasoline at $4.00/gallon or $1.00/gallon.  Demand may fluctuate, but your abilty to sell these things in an inflationary environment has not changed much.  

Who gets screwed is the wage-earner, the pensioner, or the saver.  Ever wonder why wealth distribution is so badly skewed in Latin America?

Sorry to be crass, and I hope your comment is satire - because its really the stupidest thing I have heard in a long time.

novictim's picture

"Stupid" is taking the assumption that "inflation is bad" at face value.

There are plenty of examples in history of how entire countries have rejuvenated their economic prospects by means of high inflation rates.  But you will never see praise for these policies.  All you will hear of is the short term pain and suffering of the poor but you and I both know that TPTB care nothing  for the poor.  

People were suffering in Germany before hyperinflation and they were ignored, were they not? 

You think the economists who launched the Hyperinflation of 1920's Germany didn't know what they were doing or that they were unpatriotic?  Stop being a victim of "common sense".  Think this through on your own.

The only ones hurt in the long run by temporary high inflation are the lenders of debt.  


CANADA's shit-for-brains Governor of the Bank of CANADA and our shit-for-brains Federal Finance Minister feed Canadians the same lines of

bullshit every week. Even the local University Business School director

says the same shit as the other fuckups. A radio personality involved with

the most elite business school in the USA feeds us the same shit too.

There is a very BIG fucking difference between 'deflation' and hyperinflation' but these shill motherfuckers still claim that there is only mild inflation and that all the fundamentals are still good. I suspect that everyone in the world is getting the same talking points

from Dr. Evil based in Europe somewhere.

RaceToTheBottom's picture

When I go over to Marketwatch and read some of those articles or click on their videos, I get a very different picture from here.....

Someone is going to have a Great Reckoning.  It is going to be really weird seeing them come together into one reality.

The Santelli/Liesman cat fight is scary.  Scary in how Santelli is going to hav e heart attach and more scary about Liesman and his smug arrogance.  That alone is ground for reflection.

anefarious1's picture

Serious question: If inflaltion is running much higher than we are told, does that mean the national debt is shrinking? In calendar year 2014 the total US debt will only increase about 3%

PGR88's picture

In real terms, YES.

Inflation is how the US Government will deal with massive debt and unfunded liabilities like Social Security and Medicare.

rum_runner's picture

Seriously.. that monetary base supply chart - I always have the same reaction ... mind .. blown.   Insane that that chart is not discussed by the MSM but then again I may as well wish for unicorn poop for breakfast.

Hohum's picture

Whenever ZH expresses concern for the working man, a tear rolls down my cheek.

theyjustcantstop's picture

poor  warren lost most of his integrity, and down home country veneer when he personally was the one who benifited with the most tax-payers billions of dollars than anyone in america, with the bail-outs, and the stimulus.



AdvancingTime's picture

I have come to the conclusion that while inflation appears tame and government claims it is low it is growing. The seeds have been planted, and the number of them is somewhat shocking.

Inflation lurks beneath the surface and is hidden away in the dark corners of our future. Want to know where the real cost of things is going, just look at the replacement cost from recent storms and natural disasters. More on this subject in the article below.