From 1971 to 2006 the purchasing power of the dollar has declined 500%. Since 1920, the value of the dollars has declined 97%. In other words, what 3 cents bought in 1920, $1.00 buys today. Why does this have to happen.
As another metric of value, when the price of gas went from $1.00 per gallon to $4.00 per gallon, it was not the price of gas increasing, it was the value of our fiat currency decreasing, all led by inflation and the federal reserve.
I asked an economic teacher recently what happened the the debt that the US government incurred as a result of WW2. He answered quickly. Its still there. WW2 cost the United states a whopping 300 billion dollars in 1945. Government income was 53 billion at the time. Instead of paying off that debt, they just decided to inflate their way out of it. Inflation by the federal government is equivalent to stealing from the holders of its dollars.
Today, every time Big Ben Bernake SNEEZES, he is handed a 300 billion dollar tissue.
Here is another reason why inflation is bullshit. I go out today and buy 10 bags of concrete for $50 at home depot ($5/bag), then I put them in my garage for 10 years.
In 10 years I log onto craigslist and put up 10 bags of concrete for $200. Somebody comes along, and since concrete is concrete and the current price at Home Depot is $20/bag, buys them for $200.
According to the federal government I just made a $150 profit, and I owe them taxes on it. Wait what? First you steal my money in savings through inflation, then you tax me when I sell something for a "profit"
The government has HUGE incentives for inflation. It reduces their debt and increases their income. It also allows them to print money.
So the question is, can we trust that the government is accurately reporting inflation?
I introduce to you all shadowstats.com. In 1981 the Government re-defined their definition of inflation. The new definition took into account technological innovation. For example, under the old rules, if a computer in 1970 cost $10,000 and in 1972 cost $11,000 then the price inflated 10%. Under the new rules, If a computer in 1970 cost $10,000 and in 1972 cost $11,000, but was twice as fast,, then the price actually deflated about 50%.
Since 1981 the government has been taking advantage of technological innovation, allowing them to print more money because of it.
The thought for the day.
If in the year 1875, all farming was done by hand. It took 10 workers 100 hours to grow a bushel of wheat. Lets say that bushel of wheat cost $100. (im making this up)
After 150 years, with technology, genetically modified grains, tractors, fertilizers, etc it now takes 1 man 1 hour to grow a bushel of wheat, shouldn't that wheat be cheaper than it was in 1875? The answer is YES, but in reality its no.
No, because the US government has effectively stolen the benefit of that innovation through inflation.
You see this everywhere. Cars and manufacturing technology, food, JIT distribution, DVDs, music, etc. Capitalism encourages goods to be made "better, faster, cheaper" but because of inflation we end up with "better, faster, more expensive"
Another way to think of it. According to the US government, prices today are only 25% higher today compared to 2001 (when i graduated high school).
Gas is up 400%
Housing is up 50%
Movie tickets are up 40% (if I remember correctly)
I now get 1.5 quarts of ice cream for $3 instead of 2 quarts
Whoppers are up 300%
I'm sure there are items that are only up 25% but they are the exception to the rule.
Next post will be a fun one, titled "The Greatest Casino in the World"
No comments:
Post a Comment