Inside This Issue You Will Discover…

*** Snookered By Inflation
*** How It Works
*** The Lone Voice in Washington
*** And More

Snookered By Inflation

It happens so subtly you don’t even notice it at first.  You actually feel wealthier, when, in fact, you’re not.

How It Works

It happens like this…

Exactly five years ago, December 18, 2002, John Jones, still smarting from the dot com crash, invested $50,000 into a money market fund with an annual percentage yield (APY) of 4%.

Today he checks his balance and is pleased to see his account now has $60,832.

“I’ve made a cool $10,832” he reflects while basking in the glories of compounding interest.

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But little does he know that he has not made $10,832; he’s barely stayed even.  Using the Bureau of Labor Statistics’, Consumer Price Index inflation calculator, we find that $60,832 in 2007 is only worth $52,378 in 2002 dollars.

So at best he’s made just $2,378.  We say “at best” because there are strong arguments to be made that the government uses biased or manipulated numbers in their reporting.  You can learn more about this at http://www.shadowstats.com.

But at least he did better than if he’d kept his money in his mattress.  In that case, it’d be worth just $43,051 – a loss of $6,949.

This loss of purchasing power is the direct result of the government increasing the money supply.  In effect, it waters down the value of your savings.

The Lone Voice in Washington

Congressman and presidential candidate Ron Paul is the lone voice in Washington to express outrage over this.

Before the Congressional Joint Economic Committee on November 8, 2007, the following exchange between Ron Paul and Federal Reserve Chairman Ben Bernanke took place:

Ron Paul: “But how can you do this and pursue this, the policy you have, without further weakening the dollar.  There is a dollar crisis out there and people’s money is being stolen.  People who have saved, they’re being robbed.  I mean, if you have a devaluation of the dollar at 10%, people have been robbed of 10%.  How can you pursue this policy without addressing the subject that, somebody is losing their wealth because of a weaker dollar and it’s going to lead to higher interest rates, and a weaker economy.”

Ben Bernanke: “If somebody has their wealth in dollars, and they’re going to buy consumer goods in dollars, and it’s a typical American, then the decline in the dollar, the only effect it has on their buying power is that it makes imported goods more expensive.”

Ron Paul: “Yeah, but not if you’re retired and elderly and you have CDs and their cost of living is going up no matter what your CPI says.  Their cost of living is going up and they’re hurting and that’s why people in this country are very upset.”

Too, we’ll add, the typical American does buy imported goods.  The number one imported good being gas for their car.

Inflation is alive and well.

Sincerely,

M.N. Gordon
Great Depression Online

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