How Uncle Sam Inflates Away Your Life

Tyler Durden's picture

Authored by MN Gordon via EconomicPrism.com,

“Inflation is always and everywhere a monetary phenomenon,” once remarked economist and Nobel Prize recipient Milton Friedman.  He likely meant that inflation is the more rapid increase in the supply of money relative to the output of goods and services which money is traded for.

As more and more money is issued relative to the output of goods and services in an economy, the money’s watered down and loses value. 

By this account, price inflation is not in itself rising prices.  Rather, it’s the loss of purchasing power resulting from an inflating money supply.

Indeed, Friedman offered a shrewd insight.  However, he also accompanied it with an opportunist mindset.  Friedman saw promise in the phenomenon of monetary inflation.  Moreover, he saw it as a means to improve human productivity and economic growth.

You see, a stable money supply was not good enough for Friedman.  He advocated for moderate levels of monetary growth, and inflation, to perpetually stimulate the economy.  By hardwiring consumers with the expectation of higher prices, policy makers could compel a relentless consumer demand.

This desire to harness and control the inflation phenomenon has infected practically every government economist’s brain since the early 1970s. 

Over the decades they’ve somehow come to a consensus that 2 percent price inflation is the idyllic rate for provoking economic nirvana.  The Fed even tinkers with its federal funds rate for the purpose of targeting this magic 2 percent rate of price inflation.

Shadow Stats

On Wednesday the Bureau of Labor Statistics (BLS) published its October Consumer Price Index (CPI) report.  According to the government number crunchers, consumer prices are increasing at an annual rate of 2 percent.  Of course, anyone who lives and works in the real world knows prices are rising much faster.

For example, John Williams of Shadow Government Statistics calculates the CPI using early-1980s methods.  Williams re-creates how the government previously calculated the CPI before they reconfigured their scheme to understate inflation versus common experience.  By Williams’ calculations the CPI is increasing at an annual rate of 9.8 percent.

What price inflation number you believe is up to you.  We’re merely providing information for your consideration.  Are consumer prices rising at 9.8 percent per years, as Williams suggests?  Are they rising at 5 percent?  Are they going down?

We suppose it depends on if you’re buying a flannel shirt at Wal-Mart or paying your utility bill.  Still, many would agree that, overall, their day to day experience includes price increases far greater than 2 percent per year.

If we assume price inflation to be 3 percent per year, that means the purchasing power of your cash drops by 30 percent over a 12 year period. 

Hence, if you retire at age 62, that means you’ll see the purchasing power of each dollar you own decline to $0.70 by age 74.  By age 86, your purchasing power will be cut in half.

In short, 3 percent annual price inflation reduces each dollar you own to just $0.50 in less than 25 years.  Without question, this is a significant loss in purchasing power. 

What’s more, generating consistent investment income to overcome this loss in purchasing power is a tall order.  Surely, you can’t rely on the government’s cost of living adjustments (COLA), which are tied to the CPI, to maintain your living standard.

How Uncle Sam Inflates Away Your Life

We doubt that the dollar devaluing effects of price inflation is a new concept for you.  Most likely you’ve heard this many times before.  Certainly, you experience it as you go about your business.

However, this stealthy destruction of your wealth bears repeating.  The fact is over the course of your retirement half of your life-savings will be covertly confiscated from your bank account.  We find this to be wholly intolerable.

Remember, your life-savings is just that.  It represents your life.  Specifically, it’s stored up time you traded a portion of your life to earn.  So, too, it’s a measure of your financial discipline and ability to save and invest overtime in lieu of supersized spending.

When Uncle Sam confiscates your life-savings via the inflation tax something more is happening.  Not only are you being robbed of your money, you’re being robbed of your life.  Your life’s simply inflated away.  Poof!

Factor in federal and state income taxes, social security, disability, Medicare, capital gains taxes, outrageous health insurance costs, subsidizing luxury electric vehicles and grape flavored soda pop, and a vast array of fees and exactions, it’s a miracle you have any money left over at all.

Alas, what money you somehow manage to hold onto will be inflated away long before you need it most.

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Five Star's picture

It takes twice as many years of work for the median household to pay for a home than in the 60s

http://thesoundingline.com/median-home-prices-work-vs-gold/

dasein211's picture

THE ONLY TRUE WAY TO CHANGE THE SYSTEM IS TO CHANGE WHAT MONEY IS!!!! Hence Bitcoin and Cryptocurrencies. They have strangled the gold/pm/asset markets and can print away any currency they like. There is no other way out than to take back their point of strength and make it ours again. They control the gold markets by controlling the debt. There is no other way. It’s coup by force of the blockchain.

ne-tiger's picture

It's the fucking tuition and healthcare that killed middle class who are willing to pay kids education

BennyBoy's picture

 

This stupid exponential debt based financial system needs ever increasing debt to function.

The best way to increase debt is to inflate everything.

And debt is the only thing that creates money in this system.

LawsofPhysics's picture

Moreover, the premise is false.  Uncle SAM does not control the money supply, THE FED DOES!!!!

Jump you fuckers!!!

itstippy's picture

My house was built in 1961 and was a typical new middle-class American Dream house at the time.  Every working class family wanted one.  It's 1000 sq. ft. with three bedrooms and one bathroom.  It didn't have central air.  It didn't have a dishwasher.  It had 100 amp. electrical service (fuse box).  It has a one car garage.  It was very poorly insulated.  

Today's "median household" house is twice as much house.  Of course it takes twice as many years to pay for it.  In the 1960s the rule of thumb was 20% down payment, thirty year mortgage, and house price is three times your gross income.  That's what the bank would finance.

Consuelo's picture

 

 

True to an extent, but economies of scale, manufacturing efficiencies, availability of anything & everything, etc., have all but made up for that 'twice-as-much-house'.

And let's not forget what post 1971 and stratospheric trade imbalances have done to artificially proliferate (inflate) that very dynamic.

itstippy's picture

The median American household income today is right around $60K.  A household with that income should save up $36K for a down payment and be looking at $180K houses.  My house, with lots of upgrades, is assessed just under that.  So, the median American household should be looking to buy a house like mine, not a 2,500 sq. ft. 3 bedroom 3 bath with a master suite and 2 car garage for $250K. 

20% down payment, 30 year mortgage, house value 3X annual gross income.  It's a good rule-of-thumb.  It keeps people from overextending.  People desperately want to believe that a house is a terrific investment, and overleveraging on the house is a wise and prudent financial decision.  They want to believe that because they want to live in more house than they should realistically be buying.  The banks and realtors are all too willing to accomodate and encourage their risky behavior.

Perhaps the house will go way up in value, perhaps not.  It's a big risk.  Perhaps people should hedge their finances a bit, buy less house, and put more money into other areas.  Plowing everything one can muster into the house and cars is not a good idea, in my opinion.

DaveyJones's picture

and I bet in the 1960s bankers could actually go to jail

It is ironic that the average family size was larger while its house was smaller

I bought a "small" home in 1999 for all those reasons. And it actually has a yard

These large modern homes are built like crap and they sit on their virtual legal setback from one another

I live in a ridiculously overvalued part of the country where the average home is now 800K+

 All of this will come crashing down of course and when it does,

I'll take room for a garden

over a master bedroom that's bigger than the yard

factorypreset's picture

I think the 2.1% inflation figure for automobiles is bullshit. 

 

motorollin's picture

Obviously they didn't measure light trucks and SUVs. Cause damn.

Econ10fun's picture

The data says that cars are the same price today as they were 20 years ago and a tv costs 96% less so it has to be true... hedonic adjustments another lie.

yogibear's picture

"I think the 2.1% inflation figure for automobiles is bullshit"

Absolutely. Their a double now, from 10 years ago.

A F150 used to be $18,000 to $25000. Now about $34,000 to $60,000

True Blue's picture

Software too. Prices have more than doubled and with the crap code and general frustration it causes, you can factor in an 'anger inflation' too.

JHC on a Popsicle stick -they can't even make a god-damned toaster that works right, or lasts for more than six months.
Loss of quality is 'inflationary' too.

rejected's picture

Takes average 30 years to apy a mortgage today,,, took average 30 years back in the 1960's. 

Same time,,, huge increase in payment, taxes, insurance.I wouldn't buy a 'new' home. Homes built in the 60' thru 80's are sufficient for a family not trying to out do their peers. I see homes around me going for 60-90 thousand. Put 20-30 into it and you will have a nice home at a reasonable price.

Note: I am aware of 40 year mortgages but 30 year are still the most used.

Lying Sweetly's picture

Are you being robbed? Hell yeah!

Are they lying to you? You bet.

But, are you lying to yourself? Well, don't get all red in the face.

Read this http://lyingsweetly.blogspot.com/2017/05/lying-sweetly-i-am-going-to-tel...

True Blue's picture

That and the ever increasing cost of mandated expenditures like 'health care' and taxes have caused the demographic decline all over the West and Japan.

They are stealing your work, your life and your future.

Ecclesia Militans's picture

My money will be converted into casks of retsina on some Greek island when I need it for my golden years.  Oopah!

So It Goes's picture

Retsina - Yuck

You'd be better off with Domestica :-)

EnragedUSMCExpat's picture

Sorry, all the Greek islands have been sold at firesale prices to "elites" by Merkel. Try Pitcairn.

HRH of Aquitaine 2.0's picture

I took a college class from a butcher-turned-sociology professor.

He was obsessed with two things. The Titanic and the Mutiny on the Bounty and Pitcairn Island. Okay, that's three things. I don't remember any of the sociology crap. I remember learning lots about being a prepper, surviving, and what the Titanic and Bounty did wrong!

People on the Titanic could have survived while waiting for rescue. My professor actually tested this out with his search and rescue group. They cut a hole in ice and tested the following method while monitoring their core body temp.

The Titanic kitchen was stocked with buckets of lard. Lots of lard. Cabins were stocked with sheets. If they had stripped down, rubbed themselves with lard, strips of sheets, more lard, strips of sheets, more lard, strips of sheets, and more lard the men could have survived in the water while waiting for rescue It took hours for the Titanic to sink. It didn't sink in five minutes. Survivors were rescued the next morning.

Always know what you have on hand and how to use it if you need to survive. Inventory and critical thinking.

As for Pitcairn and Christmas Island and the Mutiny on the Bounty? That's a whole other story.

Peak Finance's picture

LOLZ TV;s -96%

Gotta make sure the primary brainwashing device is affordable! 

ShrNfr's picture

Simple answer. Hold hard assets or stock in companies that hold hard assets. Avoid cash and bonds.

DontWorry's picture

what companies hold hard assets?  Utilities?  Rail?  Mining?

dasein211's picture

No shit. You can’t even trust gold to be gold again. Ask Canada.

So It Goes's picture

Celente has always said that he saves gold for his Golden Years.  Smart guy.

GRDguy's picture

It's just lyin' and stealin' from the many, to benefit a few sociopaths.

I don't care which words they use from a thesaurus, it's still lyin' and stealin'.

It's just like putting a drop of poison in someone's coffee every day.

The victim(s) don't die right away. Usually they don't even know who did it to them.

You want your life back? Vote against every incumbent, every election. One term period.

factorypreset's picture

"You want your life back? Vote against every incumbent, every election. One term period."

 

You're exactly right. Unfortunately, people are dumb. 

rejected's picture

Wouldn't change a thing. Wouldn't take long to find out who the bosses really are, 

Only took Emperor Trump 3 months to discover who was his daddy.

44magnum's picture

Yes very dumb because they think voting will make a difference. What difference has it made in the last 20 years?

GRDguy's picture

So, you think bullets would make a difference?

They've got way more than we do.

Easyp's picture

Buy assets, property, silver gold or platinum.

JibjeResearch's picture

Minus metals shit..., add cryptos instead... :)

dasein211's picture

The hard asset guys don’t realize that once we get into space we’ll mine hard currencies into oblivion. The road is paved with the bodies of small minded thinkers who say “oh that will never happen.” The center will change.

So It Goes's picture

Mining hard assets in space.

Nope - not in my lifetime.  And, that won't help what is going on in cities like Baltimore and Chicago.

Gorgeous's picture

Uncle Sam found the LifeSuck 3000??

https://www.google.com/search?q=dilbert+life+suck&tbm=isch&source=iu&pf=...

I knew it felt like 2% of my life got sucked away last year.  Dang, first it was just the dead cash sitting uselessly in my savings (/s) , now it is my dead useless Life (/ss)!!  Please, no more sucking!

 

steve2241's picture

In Britain, they've figured out what ails you, "Shit Life Syndrome".  Really.

https://www.ft.com/content/b6dbf34e-c987-11e7-aa33-c63fdc9b8c6c

Solio's picture

Well, yes, but, at least if you like your organs you can  keep your organs....

oh, no, never mind...

khakuda's picture

Theft by inflation not being enough, we now have the Fed arguing for negative intererest rates, a term which should be banned.  It should be called what it is, outright capital confiscation and theft of your life and time that was spent to amass savings.

Scornd's picture

no matter where interest rates are, it fuckes half of the people in your neighborhood

moonmac's picture
Poor Uncle Milt taught us a lot of good lessons. He didn't think the Fed should even exist, but as long as it did they could use liquidity to prevent a depression and now he's labeled a Money Printer and deservability so.‎
nsurf9's picture

It is a taking without due process.  THIEFT!!!!!!!!!!!!

Every person in this country better darn well know what you have explained.  In addition, know: who are the aliens (non-US-citizens) that owns their money; who benfitted from the buying power that was stolen; who they sold your debt to; and, how and why they have covered this shi$ (note to self: no more cursing) since 1913, and before, with the other two US central banks.

END THE THEIVING FED!

They are impoverishing over 99% of the US citizens without any apparent end.  And, reclaiming everything they have stolen and hanging them doesn't even come close - the rest of the retribution is God's job.

shizzledizzle's picture

Notice everything on that list that has gone down is not a need.

Consuelo's picture

 

 

If that isn't a caricature of Bernie Made-Off... 

wcvarones's picture

Fortunately, almost everyone has figured this out and almost nobody keeps their savings in fiat currency any more.

Scornd's picture

fractional reserve banking