The Inflation Tax

The inflation tax is real, and it is insidious.

A common misconception is that inflation is an increase in prices. It is not. Inflation is the increase of the money supply.

The effects of inflation are the increase in consumer prices for goods and services. These increases do not happen all at once and they are different for each good and service. Food, clothing, housing, energy, entertainment inflate in prices at varying times and rates.

When prices rise, each dollar buys fewer goods and services. In other words, inflation is a loss in the real value of the medium of exchange in an economy.

For example, if the same basket of groceries costs $100 one year ago today now costs $105 then those items have inflated by 5% over the past year.

If your income has not kept pace with this, then you will have less to spend or invest because of the extra money you spend on groceries.

The Consumer Price Index
Unfortunately, the Consumer Price Index does not accurately reflect real inflation in the US.

The CPU does not include energy and food costs!
This makes no sense until we realize the government puts their own interests higher than ours. In an effort to keep the inflation figures artificially low, the government has chosen to extract these two critical consumer items.

The real inflation of goods and services.
Real inflation is more worse than what the government publishes. It is more accurately portrayed by:

What Causes Inflation?
Inflation is primarily a monetary effect. It is caused by is the printing of money (not backed by a commodity). In other words, when the amount of money supply is increased by the Federal Reserve then there are more dollars chasing the same number of goods and services.

Politicians like money because the more they have, the more they can spend on to huge public works projects, entitlement programs, funding wars, political luxuries and other extravagances.

This spending promotes:

• A sense of wealth in the population that enhances a politician’s standing.

• It allows increased government giveaways in entitlement programs that enhance a politician’s standing with many voters.

• It increases government power, and almost all politicians like more power.

• Government graft and corruption. The more the money supply increases, the more it is misused and stolen.

Money is like a drug to politicians. The enabler is the FED who prints the money.

When the Federal Reserve (FED) increases the money supply without commodity backing (as is done with fiat currencies) the government spends more than they take in with taxes, tariffs etc.

Fiat Currencies
Fiat currencies are designed to lose value to pump up economic activity and provide a false sense of economic growth.

A fiat currency allows politicians to stimulate the economy for a time. Much later the silent inflation tax kicks in when almost no one is paying attention. Like a professional thief in the night, people’s savings are slowly depleted without most ever being aware of what is occurring—until it is too late.

Boom and bust cycles occur. More money is injected into the economy on each successive boom cycle to stimulate it. Eventually hyperinflation kicks in. If hyperinflation goes into overdrive, the currency collapses.

The massive amount of currency that the FED is printing has put the US on a trajectory that is unsustainable. A continuation of this policy will lead to a fiat currency failure.

This would be catastrophic for many good people here in the US who have saved their entire lives—only to see their wealth evaporate in a very short time.

Unfortunately there is too much compelling evidence to use the argument that: It cant happen here.

All fiat currencies are ticking time bombs and devastate the wealth of the middle class for those who don’t employ wealth preservation techniques.

See: Redenomination on Wikipedia. It shows a large number of fiat currencies around the world that lost so much of their buying power that they had to be re-denominated.

Roll the Presses!
The FED is accelerating the printing of money. This is bad news for the economy. Here are some sobering facts! See: The M1 Money Supply for more detail.

In October of 1992 the M1 Money Supply stood at 1.0 Trillion.

In June of 2008 the M1 money supply was 1.4 Trillion.
This is an inflation tax of 40% over those sixteen years.

In January of 2012 the M1 money supply was 2.23 Trillion.
This is an inflation tax of almost 60% in less than four years!

This inflation tax has not completely filtered down into the prices of goods and services—but it will. As the economy recovers there is a high probability we will see the likes of hyperinflation that could devastate the U.S. economy.

Further Study
To learn what you can do to protect yourself from economic destabilization start by reading: Wealth Preservation. Next, learn as much as you can from this website. Also, review other excellent websites that are spiced throughout this site.

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