The recent report from the Bureau of Labor Statistics indicates that consumer prices saw a rise of 0.6 percent in August. Over the past year, consumer prices have increased by 1.7 percent. However, anyone who has been keeping an eye on their expenses knows that these government inflation figures do not reflect the actual cost of living.
If inflation were measured using the methods from the 1980s—prior to the adjustments made by government statisticians for political motives—the consumer price index would show an annual increase of 9.3 percent. This stark contrast highlights that a 9.3 percent inflation rate far exceeds the reported 1.7 percent.
This discrepancy poses a serious challenge, especially for low-income individuals who live paycheck to paycheck. They may now find that their earnings don’t last until the next payday. Furthermore, an inflation rate of 9.3 percent is detrimental to savers and retirees relying on fixed incomes.
For instance, a Certificate of Deposit currently yields a mere 0.09 percent annually, resulting in a substantial loss of approximately 9.21 percent of purchasing power within a year. Even worse, regular savings accounts offer a meager yield of just 0.02 percent annually, translating to a loss of about 9.28 percent.
This illustrates how inflation in the money supply fuels poverty inflation. Furthermore, it enables governments to stealthily erode the wealth of their citizens. Let’s delve deeper into this issue.
A Near Insurmountable Mountain of a Problem
John Maynard Keynes, the esteemed British economist, captured the essence of this dilemma in his 1919 work, “The Economic Consequences of the Peace…”
“Through a persistent process of inflation, governments can discreetly and unnoticed appropriate a significant portion of the wealth of their citizens.
“There is no more subtle or certain means of destabilizing the foundations of society than to weaken the currency. This process leverages all the concealed forces of economic laws toward destruction, in a way that is imperceptible to most.”
It is clear that today’s governments embrace inflationary policies, banking on the obscure mechanisms of economic law to deceive their citizens.
Yet, even for those who recognize the signs of money supply inflation, it represents an almost insurmountable challenge. Doing nothing equates to financial decline. To maintain one’s standard of living, individuals must either substantially increase their income or invest their savings wisely.
Both paths are fraught with difficulty, demanding diligence, resilience, and courage even in the face of failures.
What You Are Up Against
Indeed, government inflation is the reason why a $100,000 annual salary no longer affords a comfortable middle-class lifestyle for a family of four in many urban areas. Regrettably, most individuals are not keeping pace with inflation; instead, they are falling further behind.
According to a recent report from the Census Bureau, the real median household income in the United States in 2011 was $50,054. This reflects a 1.5 percent decrease from the previous year—the second consecutive annual decline.
Consequently, households are losing financial ground each year, depleting their wealth rather than building it.
Today, as President Obama and candidate Mitt Romney suggest, a family earning up to $250,000 per year is classified as middle class. While this may seem substantial now, government inflation means this will soon be the median income.
In 1961, fifty years prior to the latest report, the Census Bureau recorded the median family income at $5,700. If you add a zero to that figure, it aligns closely with the 2011 median income. In 1961, earning $25,000 would have been viewed as a generous income. However, just 22 years later, in 1983, $24,580—around $25,000—was the median family income.
If this trend continues, by 2034, the median family income will likely reach $250,000. Though this date may seem distant, it will arrive sooner than anticipated.
Will you still be around in 2034? Will you retire by then? Will others depend on you? If so, an income of $250,000 per year may be required for a median family lifestyle. How do you plan to achieve this?
Assuming the 10-Year Treasury note yields around 2 percent (currently at 1.87 percent), you would need approximately $12.5 million saved to generate an annual income of $250,000. After taxes, which would likely take around $75,000, accumulating this wealth is a daunting task.
This encapsulates the challenges you are currently facing.
Sincerely,
MN Gordon
for Economic Prism