Inflation is a rise in prices, which can be translated as the decline of purchasing power over time. The rate at which purchasing power drops can be reflected in the average price increase of a basket of selected goods and services over some period of time. The rise in prices, which is often expressed as a percentage, means that a unit of currency effectively buys less than it did in prior periods.
Introduction
In other words, inflation in prices equals devaluation of the dollar. Supposedly, the Fed’s targeted inflation rate of 2% is necessary to achieve “price stability.” I don’t know about you, but to me “stable” means flat price levels, not persistently increasing prices. Let’s say I weigh 180 lbs and my body weight is increasing 2% per year, every year, for 40 years, ending at 397 lbs; does that constitute “weight stability?” Of course not. And likewise, the 2% inflation target has nothing whatsoever to do with price stability. The assertion is pure propaganda. And, intentionally no doubt, the word “inflation” sounds a lot more benign than devaluation, doesn’t it?
15 Beware of false prophets, which come to you in sheep's clothing, but inwardly they are ravening wolves.
16 Ye shall know them by their fruits. Do men gather grapes of thorns, or figs of thistles?
17 Even so every good tree bringeth forth good fruit; but a corrupt tree bringeth forth evil fruit.
18 A good tree cannot bring forth evil fruit, neither can a corrupt tree bring forth good fruit.
19 Every tree that bringeth not forth good fruit is hewn down, and cast into the fire.
20 Wherefore by their fruits ye shall know them.
Like I’ve done before, I try to put these things in terms that a normal human being can understand, like me for example. So I do this for my own edification, and then share it with you. I’ll admit, I let the assertion that “inflation is theft” bounce off me for a long time. A long, long time. Had I not we would probably be a lot better off than we are today. But, as is often the case, I had to do the math for myself, which I’ve taken a snapshot of just below. Since my “career” started in 1983, this is the perfect time to have a look back at what inflation would have done to dollar savings over the course of 40 years. “Inflation,” especially a measly 2%, sounds benign, which is of course the point, but its impact is insidious, and I’ll argue, pure evil. So, let’s have a look at the fruits of the actual 2.82% average inflation rate we have lived with.
I agree, tables don’t do much for me either. Geri is the table person, I’m more of the charts and graphs visual type of person. But let me explain.
BLUF Bottom Line Up Front
I assumed an inflation rate of 2.82%, which according to InflationTool is the actual average annual inflation rate over the course of the past 40 years. Then, I assumed annual wages of $41,000, which puts it in the lower Middle income class range in 1980, according to Statista.
At the end of our hypothetical 40 years of disciplined saving, our bank balance would show $296,830. Anyone would smile at that I suspect; not a bad next egg for a person with a lower middle-class income. But there is a problem, the purchasing power, the value of the $296,830, has shrunk to just $199,952, thanks to the insidious effect of inflation, or better said, programmed devaluation of the dollar. In other words, the Federal Reserve, in collaboration with the federal government, has stolen 32.6% of your earnings. Honestly, if that doesn’t piss you off I don’t know what will.
How about this; in my post Whom Shall Ye Serve I wrote,
…our current spending rate stands, <at> 38.21% of GDP, aka Gross Domestic Product. In other words, GDP is a measure of the total production of We the People. GDP is the combined fruits of our labor. And the 38.21% is the percentage of those fruits that we “contribute” to governments at the local, state and federal levels.
So, between taxes on you and futurity, and devaluation of the dollar, you are relieved of 70.81% of the fruits of your labor. If it seems unbelievable, do the math for yourself.
Regardless of the tax take, we can already see, that the fruit of the dollar devaluation “tree,” i.e. programmed inflation, is evil.
And I sincerely believe with you, that banking establishments are more dangerous than standing armies; & that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.
Thomas Jefferson, in a letter to John Taylor in 1816
Bank-paper must be suppressed, and the circulating medium must be restored to the nation to whom it belongs.
Thomas Jefferson, comment to John Wayles Eppes in 1813
I began this discussion of inflation in my post, Give Me Your Tired, Your Poor. Now who do you think might suffer “disparate impact” from this policy of programmed devaluation of the dollar? From my point of view it is more clear evidence that the powers that be could not care less about the poor. It’s all just words, meaningless words. As the Bible says, “Ye shall know them by their fruits.”
What Does This Mean?
The first thing one would expect, is that savings rates should be depressed. Why save when the Fed is going to take, over time, a very significant portion of your savings? I don’t think people necessarily understand what is happening intellectually, but their gut is telling them that saving is a losing proposition. And rightfully so. The government wants to encourage spending, not saving.
I do think a key takeaway is to only have banked what you absolutely need to have in the bank to sleep at night. We all need some dollars to satisfy dollar obligations in the near-term; short-term liabilities, like the mortgage, utility bills, groceries, etc. In other words, we all need to have some very liquid assets, cash equivalents if you will, that if not dollars can be converted to dollars very quickly.
As I mentioned above, “The government wants to encourage spending, not saving.” Growth of the economy, GDP, is largely dependent on “personal consumption.” If we do not buy a lot that we don’t need, the economy contracts. We can’t have that!, and the Fed encourages spending by discouraging saving.
Another thing that programmed devaluation of the dollar does, is to reduces the real cost of borrowing, a program feature which the government uses to its full advantage. We can do the same; borrow long-term at low fixed rates, and pay off the more valuable borrowed dollars with ever-cheaper future dollars. Having said that, what you buy with those borrowed dollars is key; you want to borrow against real assets that increase in dollar value, appreciate, not things like new cars, or even used cars, which with rare exception will lose value year by year. If you are going to buy a consumable, or something that is going to lose value over time, use cash.
Further Reading, and More To Be Done…
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