I'll warn you though, this article is quite long much longer than my average post. But even though it's long I believe it has valuable information that many people could use. It is to my hope that those reading this will find this a very interesting and satisfying read.
The Truth about Our Money and the Real Hidden Tax
If you look at the numbers below they give you a good insight on the average price of common (food and energy) house hold items. The charts range from 2012 back through 2004 and if you look carefully many of the common items we purchase today were much cheaper back 8 years ago. In fact many items rose 2-3 times in price. Why? It's because over these years the government as imposed a hidden tax on us a tax called, “Inflation”.
Many people tend to think inflation is a natural occurrence which is far from the truth. The truth is Inflation is created when more money is being chased after few goods. Which means that if more money is being printed and entering the economy then prices will rise. This is the basic rule of supply and demand.
Here's how it works:
The Federal Reserve (which is a PRIVATE Corporation and NOT Government owned) issues a new monetary policy to help stimulate and 'inflate' the economy by issuing orders to print/pump more U.S. Dollars/Treasuries into the economy. The U.S Treasury then runs the printing press and sells the U.S. Treasuries as IOU's (debt) to foreign investors (China, Japan, or Saudi), Hedge Funds, Banks or even back to the Federal Reserve itself.
Selling the U.S. Dollar or Treasuries to creditors is IMPORTANT, because if all newly created dollars entered the economy and into the hands of the American people this country would have had a much higher level of inflation or even Hyperinflation over the past years. But since most of the money does not go directly into the hands of the American consumer the rate of inflation is somewhat minimized. Think about this, remember the 2009 Obama stimulus package the one worth $787 billion? If every working American (estimated figure of 154 million Americans according to U.S. Consensus) were to receive this money, they each would have received a check for $5,246.66. Although $5,246 isn't a lot of money for one person; however, if you multiply that by 154,000,000 people each receiving the check, that's a lot of purchases being made which will create even more inflation. But remember the government is constantly creating new money because don't forget we went from a 8 Trillion dollar Deficit to over a 17 Trillion dollar Deficit in a matter of 8 years and two Presidential terms, 1 from Bush and 1 ½ from Obama.
But it doesn't stop there; the newly created dollars are transferred to regional central banks which then transfer the money to the major banks (JP Morgan, Chase, Bank of America etc). These banks then use the money to help inflate the economy by doing what they been doing, putting it into stocks (inflating stock market), loaning money to major corporations, buying Treasuries, buying metals, derivatives, buying oil, making bets, or my personal favorite lending out student loans to people who can't afford them (like the housing bubble but only worst since you cannot walk away from a student loan).
Ever wonder why these banks seem to make record profits regardless if the economy is up or down or why they're Too Big To Fail? It's because they receive an unlimited amount of money issued by the Federal Reserve, U.S. Treasury, and each other which allows them to buy up assets from other companies or organizations all over the world. So if the banks go down so do many other organizations. Can you imagine being a major shareholder of Apple, Google, General Electric, Ford, IBM or even a major bondholder of the State of California, and many other local and state Governments, or better yet how about being a major holder of U.S. Treasuries? It's simple really if you're a major shareholder or bondholder of an organization you have a lot of ownership rights and may run the business to how you see fit. Otherwise, if they don't agree you simply pull the funding from under their feet and let them rot. The saying is simple, “Those who control the money supply controls the power.”
But there is a catch 22. The problem is all this monetary easing or bad monetary policy (which is what it really is) creates a phony economy. They send messages saying that times are good and that your investments will rise and continue to grow, for example, the housing boom. When the Federal Reserve and Government decided to enter the housing market, they essentially created a bubble. The idea of providing home ownership to everyone by issuing and allowing cheap easy credit sends a message out to the average person that the prices of homes will always rise, which meant that more people were getting into the real estate market, which also meant that more homes were being built.
As prices rose, home equity rose and was often borrowed against to purchase other goods home owners wanted or needed. This in turn began to stimulate the U.S. Economy as unemployment fell, people's wealth began to rise and construction and real estate began to skyrocket. But eventually the debts came due and those who couldn't afford their homes eventually walked away devaluing the value of their home and eventually the entire housing industry.
However, today homes are still overvalued because the government and Federal Reserve are still in the housing market due to interest rates being held low, the government providing lavish mortgage modification programs, a shadow inventory that is being deliberately withheld from the market to keep prices artificially high, and a $45 billion per month mortgage-backed securities (MBS) bond buying program designed to incentivize banks to lend more money to loan applicants. Even with all these programs still going on, the reason why homes are not skyrocketing as they were before is mainly because people are still tapped out as they’re heavily in debt and their incomes are decreasing rather than increasing plus the banks aren't doing a lot of home-lending.
As for now we avoided an economic collapse but we all know that the recession of 2008 never ended even though the official word is we're out of the woods. But what's scary is the U.S Government is only setting itself up for another bubble or two both by which will be bigger, worse, and will more than likely cause a global economic collapse. What's likely to happen is U.S. Government will essentially run out of funding to pay the bills and default on its obligations sending the global economy in a massive depression. But another possibility is the U.S. continues its monetary easing (printing more dollars) and devalues the existing dollar in circulation (inflation) and pay off the debt with cheap worthless dollars, however; this action has consequences as it could cause investors and foreign governments to sell their U.S Treasuries and Dollars and flood the market. If that happens we could hit hyperinflation but even if we don't you can bet that the price of immediate basic goods (such as food, medication, clothes, cigarettes, toothpaste, water, etc. BUT NOT HOUSING, housing will do the opposite) will rise dramatically.
Another bubble that's possible is the Higher Learning Bubble or the Student Loan Bubble. In reality the Student Loan Bubble is no different than the Housing Bubble. It involves the government and banks issuing phony money to people so they can afford to go to college, but once again the problem that if more people enter college then the price of tuition, room and board, books, supplies all go up as well thus increasing the cost and difficulty of paying back the student loan. Which make college ultimately unaffordable especially when the job market isn't very optimal for the younger generation and don't forget that wages when adjusted to inflation has not increased in the past 40 years. Americans today even though they may make $47,000 per year on average actually have less purchasing power than Americans back in the 60's when their salaries average was around $11,000 per year. Why? Once again inflation, the price of goods back in the 60's compared to the average salary of $11,000 was much lower than the price of goods today with an average salary of $47,000.
Which bubble is likely to happen probably doesn't matter the truth is one bubble collapse will immediately lead to another bubble collapse which will lead to a global collapse as the Government and Federal Reserve have already used the ace from their sleeve to prevent the collapse that was caused by the housing market.
So, what’s the moral of the story? For those of us who will be hitting the retirement age in 20-40 years, hope you have a good retirement planned saved because within 20 years by using the price levels of the last 20 (charts below)years we're looking at 4 or 5 times (or more) increase of price levels compared to today, especially with our pay shrinking due to cuts. In 20 years it's very feasible that gas prices will be more than doubled what they are today. In fact I wouldn't be surprised if that average price of gas doubles in the next five or ten years as it almost did from 2009 through 2012 according to the chart below. I also expect taxes to increase as the government will look for ways to reduce the deficit. Just recently we were hit with a 2% social security tax and you can bet it won't stop there. And you can always bet the real hidden tax of inflation will always be there as long as the Federal Reserve System and frivolous government spending are around.
Inflation Sample from 2004 - 2012
Gold = 526
Oil = 51
Corn = 2.47
Soybeans = 7.56
Cattle = 89.67
Coal = 81.60
Wage = 35,648
Wage/wk = 685
Gold = 1,638
Oil = 95
Milk = 20.01
Corn = 6.67
Soybeans = 13.95
Cattle = 127.58
Coal = 182.48
Wage = 44,321
Wage/wk = 852
8 - Yr Percentage Change
Gold - 211% Increase
Oil - 85% Increase
Milk - 25% Increase
Corn - 170% Increase
Soybeans - 84% Increase
Cattle - 42% Increase
Coal - 123% Increase
Wages/Yr - 24% Increase
Wages/Wk - 24% Increase
*Every Item I've listed in the 8 year period (except for the price of milk) has vastly outpaced the rate of wages.