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"In the following pages I offer nothing more than simple facts, plain arguments, and common sense; and have no other preliminaries to settle with the reader, than that he will divest himself of prejudice and prepossession, and suffer his reason and his feelings to determine for themselves; that he will put on rather than off, the true character of a man, and generously enlarge his views beyond the present day." - Thomas Paine, Common Sense

Sunday, January 20, 2013

They're Destroying The Money In Your Pocket


Remember hearing your parents or grandparents grumbling, "when I was your age, 'such and such' only cost a quarter," and not caring at all?  At the time I couldn't have cared less. Now that I'm older and have to worry about annoying things like "making money" and "real life," I can see it with my own eyes. 

In 1913, a box of Kellog's Corn Flakes cost 10 cents (that's for everything, not just the box itself).
Last year, a box of Kellog's Corn Flakes cost $3.80.

Greedy bastard.

In 1913, an ounce of gold cost $18.92.
In 2011, gold reached $1,917 per ounce.

Why am I choosing 1913 as a starting point? Because in 1913 the Federal Reserve was created. What is The Fed's responsibility? Adjust monetary policy to keep consumer prices stable and preserve the strength of the dollar, among other things.

The US Dollar has lost 96% of its value since the Federal Reserve was created. 

Whoops.

Why? Because all the Federal Reserve does is print money out of thin air. Except now they don't even have to waste time and money on a press, paper, and ink. The Fed just adds a couple zeroes to a computer screen and viola - it creates a trillion dollars and distributes it to banks like JP Morgan and Goldman Sachs.

Now doesn't that seem a little unfair? Us little people have to break our backs to make ends meet, while the politicians and their financiers can just snap their fingers and make billions. But that's not the worst part.

Supply and demand. Every time they add money to the economy, which is called inflation, it makes the money in your pocket worth less. It loses purchasing power. Thus, food, fuel, education, healthcare, commodities and other things we need and want get more expensive. This is called price inflation

Think of the economy as a balloon and the air as money.
Just remember that the balloon pops when you add too much air.

According to the Consumer Price Index (the only measurement that politicians ever refer to concerning inflation), the inflation rate is only at 1.7%. But anyone who does their own food shopping knows that's a lie. It turns out the CPI doesn't actually account for food, housing, transportation, and energy among other things. When you factor all that in, inflation skyrockets to 10% per year. That means every year, the money in your pocket is worth 10% less because of the hidden tax of inflation. 

Obviously, this has a paralyzing effect on every single sector of the economy. So the government adds more money to the economy to make up for the vast decrease in that money's value, further decreasing the value of the money by doing so. It's almost comical.

As comical as a train wreck can possibly be.

So how does that make you feel about your next paycheck?

3 comments:

  1. "It turns out the CPI doesn't actually account for food, housing, transportation, and energy among other things. "

    Little weird, isn't it? Keeping Inflation Down by Excluding Prices That Go Up. Oh well.

    Money is by far the most important thing. But there is more to the economy that inflation. I focus on total accumulated public and private debt, relative to the quantity of money that circulates. A significant ratio, overlooked by the Fed and almost everyone else.

    But, what do you mean by "how does that make you feel" ?

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  2. First and foremost, thank you very much for posting your thoughts.

    My last line references the knowledge that barring the almost-impossible, every future paycheck you get will have less and less purchasing power, even if the numbers on the check go up. Personally, I think it's infuriating.

    You raise a great point about debt. The amount of public and private debt and inflation, I think, are intertwined. They definitely feed off each other. My understanding is that by 2020 our government's unfunded liabilities will reach $120 trillion, but you may have to correct me on that number. Banks will continue to ask The Fed to print money to make up for their own mistakes in the private sector. To pay that off, the amount of inflation will be unheard of, and will likely kill or finish off the dollar.

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  3. Hey. Yeah, related to inflation. To me, it is spending that affects prices, not printing. But obviously, the printing affects the spending. But so does bank lending.

    For some unfathomable reason, economists seem to ignore debt. For a long time they even ignored public debt. Some still do, I guess. Me, I trace the problem back to a time when the Federal debt was still falling, relative to GDP, and the rest of debt was increasing. And financial costs were increasing, making finance more profitable and productive activity less profitable. American products became less competitive, and we started building trade deficits.
    (Oh, I didn't even talk about inflation! Some other time, then.)

    Art

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