by Floyd and Mary Beth Brown
Americans are getting poorer, and the media, in a desperate bid to prop up Barack Obama, are refusing to report the story. The destruction of wealth is the direct result of government policy, and with an almost complete media blackout, many are oblivious to the suffering.
First, despite what you read in the newspapers and hear on TV, taxes are going up. The truth is: inflation is a tax. Inflation is a tax on anyone that transacts in U.S. dollars. Do you use dollars? If you answer yes, then inflation is robbing you.
If you receive a paycheck in U.S. dollars, then it is taxed by inflation. Here is how it works. If your wages are $36,000 dollars a year and inflation is running 3 percent, then if you don’t get a 3 percent raise, you are making less money in real terms by the end of the year. Your money buys you less food, less gas, less housing, less anything than it did at the start of the year. This is why you feel poorer in real terms after you fill up the tank and it costs you $50.00, instead of the $30.00 you paid a year ago.
If you think inflation savages your wages, wait until you hear what it does to Grandma. Anyone who saves in inflating dollars gets slaughtered. Bank savings serve as a good illustration to understand inflation as a tax. For example, the bank today might pay a saver 1.5 percent in interest on a CD. If inflation rises 3 percent, then you actually have less money a year later even if your balance grew.
In the same way, inflation robs mutual funds. If a fund firm charges 1 percent and the fund grows 5 percent, the investor falsely believes they are receiving a net 4 percent for the investment. However, if the inflation rate is 3 percent, the real return to the investor is actually 1 percent. The investor is stuck paying taxes on the entire 4 percent return. Depending on the tax bracket of the investor, they likely are actually paying to hold the mutual fund.
The thievery doesn’t end here. Now officially, the government tells us inflation is low, between 2 and 3 percent. By cooking the books, they keep this number low. If you visit the website shadowstats.com you will learn that the government keeps adjusting the way they calculate the rate of inflation. If they calculated it the same way it was in 1990, it would show inflation is much higher than the number the Bureau of Labor Statistics now releases.
For Grandma, the picture is even bleaker. Increases in Social Security are calculated based on inflation. If the number reported by the Bureau of Labor Statistics is wrong, then Grandma doesn’t get a real increase. Repeatedly, this keeps happening. Social Security checks aren’t increased, while prices rapidly rise.
Now, if you are not concerned yet, let us explain a small notion called compounding. Want to know what makes bankers rich? Compound interest. This is why when you buy a home for $200,000, you end up paying over $500,000 before it is paid off. Compounding also works in reverse. Say you wages are static for five years, (and this is none too rare in the last five years). Inflation will compound its effects on your paycheck and savings.
Let’s go back to our wage earner making $36,000. After five years, if inflation is running at only 3 percent, he is making $31,000 in real terms. Grandma’s Social Security and savings suffer a similar fate.
When an undergraduate at the University of Washington studying economics, Floyd was taught by the legendary Paul Heyne that inflation was, “too much money chasing too few goods.” We are about to learn if this definition is true. The United States money supply has increased by almost one trillion dollars. The European Union created 2.75 trillion Euros in the last ten years. China, in the last five years, increased its money supply by 180 percent. Even India increased its money supply by more than 160 percent during the same five years.
This is lots of money chasing a restrained amount of oil, iron ore, corn, copper, coffee, gold, wheat, silver, etc. Strap on your safety belts, because we believe inflation of 6 to 8 percent is nearly guaranteed in 2012.
The media keeps reporting sugar-coated false good news: “the recession is over, incomes are up, the stock market is on a tear.” Gobbling up spoon-fed numbers from the government with their blinders on, they are too busy trying to get Barack Obama re-elected rather than taking a close look at the real numbers and understanding how Americans, all of us, are getting poorer.
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