Inflation can be caused by three situations. #1) “Demand & Supply” Imbalances #2) “Cost Push” by suppliers passing along increased costs such as new government regulations to the consumers, and #3) is called “Money Supply Expansion” where governments print more money without having more gold to back it. While the 1st and 2nd causes have some self correcting effects over time, the third one is deadly to your finances because it has NO self correcting effects. It is simply a Government diluting your money overnight, and the amount they dilute it by, they give to their creditors. I call it “theft” but Governments create exotic names like “Wall Street Bail Outs”, “Quantified Easing”, “Deficit Spending” and “Entitlement Funding” just to name a few.
Now… did you know that inflation in America due to “Money Supply Expansion” virtually never existed prior to 1973? That’s right… prior to 1973 the United States was the last country in the world whose currency was still on the Gold Standard. If the US government wanted to spend more, they needed to obtain more gold in order to print more money and pay their debt. Their only other option was to raise taxes and they did that plenty, especially during the “World Wars”. Unfortunately, during the “Cold War” years, the Soviet Union left the gold standard for their currency and became increasingly ingenious in ways to accumulate American Dollars and then cash them in for US gold. This was depleting the American gold supplies and thus, we were forced to abandon the gold standard as well.
Hence, since 1973, the US dollar has been based on the US government’s ability to repay their debt, NOT Gold supplies. So what does that mean? The government’s “ability to repay” is based on many factors, too many to explain in a single blog, but a summary of these factors could be found in the many measurements we use to measure the growth of the “US Economy” because if the economy is growing, then the government tax revenues will probably increase as well making it easier to pay their debts. But if the government still spends more than it takes in, that is called “Deficit Spending” and it must finance that debt somehow. Unfortunately, one way to do that is to increase taxes, and the other way is to print more money. Taxation requires legislation, whereas printing money does not, so Governments like ours typically choose to print more money, causing “Money Supply Expansion” and the slow death of our finances due to “Compound Interest In Reverse” commonly referred to as “Inflation”!
Here at “TheNext3000Days” we try to offer hope and solutions to some of Americas’ financial challenges and this may be the toughest one of all. The first thing we can do is to remain vigilant against government “Deficit Spending” and out of control politicians. Your vote and your letters to your congressman do count. Secondly, on the home front, you need to guard your finances while we fight for government accountability and political change.
In our book “Future Proof Investing” we begin the book by asking the reader to answer four basic questions. One of those questions is: “Have you calculated what your inflation adjusted retirement income will need to be 10 to 20 years from now?” Many Americans ignore this or have been led to believe it has a minimal effect on their financial plans. But with inflation averages of 3% per year, you will lose 34% purchasing power every 10 years, and I plan on being retired for more than 10 years, how about you? And God forbid you also have 10 years until retirement… that’s another 34% loss.
So how else can we fight this off while we attempt to get our politicians under control? Can you say “Compound Interest Growth”? If inflation is Compound Interest in reverse, then Compound interest growth is your equalizer. We state many times in our books and our blogs that compound interest cannot and does not exist in the Stock Market, Las Vegas casinos or the lottery. While Compound Interest gains may be boring, any savings vehicle that earns 3%-4% every year will outpace most inflation years and a large portion of your money should be doing this for you, 24 hours a day, 7 days a week and 365 days every year, every single year.
You heard this advice here, but Wall Street will never say it… Wall Street brokers hope you never read this blog or ever realize the steady negative impact that inflation has on your finances. And taking on more risks, gambling and bets to compete against inflation is little more than “Hope”… and hope is NOT a strategy! But Wall Street “hopes” you will never re-position your money to consistently and effectively combat inflation because when you do, they lose their fees and profits off your money.
Now, I know what your thinkin’ … “That Kelly sure does hate the stock market and Wall Street”. And I do not hate them, I simply fight vigilantly against any attempt to hide the truth and bilk billions of dollars from unsuspecting Americans. That is why I am so passionate about Inflation, Taxation and financial Misrepresentations of all kinds. And now you know it too and it’s your turn now… Join us, contact us and let’s “move the needle” in your finances first, and the rest of the country next!