Busted: Bankers and The Global Economy

August 25, 2008

Are You Better Off This Millenium?

Media pundits, in any economic times often present the idea that it doesn’t matter how the economy is doing, but how well you are doing. This is an especially potent question during this election year as Americans prepare to vote their conscience for the next 4 years of public and political policy.

Most people consider the foundation of economic well-being as their job. While this aspect of life puts food into your mouth and determines what kind of car that you buy or the size and beauty of the house you live in, a job is probably not a realistic determination of where you truly stand in the economic world.

Most people consider income as the ultimate measure of economic success. You may have seen your wages remain flat over the years. Does your money go as far as it used to even if you do make more? Wage stagnation has been a national problem for years.

The crumbling housing market is at the root of much of America’s current economic instability. Despite declines in value, most homes at this point and time are still worth more than they were at the turn of the millennium. How has your asset value fared?

What about your net worth? Have you managed to put away money for the future or are you stuck in an endless cycle on the treadmill of debt? How you feel about your life probably hinges in large measure on a combination of all these sentiments. What is the reality?

Inflation is what determines the real value of all these measures and sentiments. Inflation is a silent robber that you don’t always see and yet is responsible for a large measure of any financial issue that comes along, whether accidental or intentional.

Inflation is often understood to mean a rise in the general level of prices of goods and services over time in any given economy. Inflation is much more. Inflation also refers to the increase of the money supply without the increase of monetary value or devaluation of currency.

We’ve grown fond of referring to the inflation as a beautifully small number such as 3%. At this level, inflation seems well-controlled and quite harmless. However, the grand scheming lie is that inflation is a low as it is. While inflation figures are computed monthly and change constantly, monthly figures, often average over time are the figures that are used for public consumption.

You only need to visit a place like inflationdata to begin to understand inflation’s effect on your finances in the grand payment plan of life. We have been taught to understand that common statistics are somehow an average of economic forces for the month, magically balanced for the year at a certain point and time. The reality is very different. Inflation is always portrayed as low and controlled.

The reality is that modern financing is built on monthly estimates to make the appearance of costs appear lower. Take the figure presented for any month as a reduction in your income for that given month. In theory, if the rate could stay the same, you would multiply that rate by 12 (for the number of months in a year) to get your inflation rate for the year. Whatever that yearly inflation rate is the amount of loss in your real spending power. That is the brutal truth.

Business may create new ways to lower costs, for example, by sending work overseas to make less expensive products and thus fueling other economies. When money leaves a regional economy, that money further devalues the currency you are using. Inflation is a fool’s game. Ultimately, whether costs are immediately higher or not, you will come to suspect that your money isn’t going as far, even if you spend conservatively.

Economists and government statisticians are constantly jiggering with how inflation is computed and creating new ways to make inflation appear low or non-existent. The myth of 3% inflation is just that: a myth promoted by the Federal Reserve Bank and global central bankers.

Next time you ask the question as to whether you are better off, you now know the correct answer. As long as bankers run the world using the current standards, including fractional-reserve banking, you cannot be better off unless you beat the real inflation rate. In the workaday world of a 9-to-5 working joe, that is a virtually impossible task. Only creative investors and business entrepreneurs can hope to beat the devaluation of currency after the onslaught of taxes, fees, labor costs and overhead. Even they still lose over time. Devaluing currency is a no-win situation over the long haul. Perhaps now you can appreciate the desperation of investors to beat the system and bankers to devalue your currency to make more money for themselves, while putting a smiley-face on the inflation rate as the value of your money drops.

~ E. Manning


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