Sunday, August 14, 2011

Inflation: The Other “Tax”

I read an article the other day that said the Fed wants to keep inflation around 3%. How they will do this, while all along printing trillions of dollars of unsupported currency, (QE1 =$1.7 Trillion and QE2 = $.6 Trillion), I do not know. Many economists predict higher and higher inflation as other countries are now coming to realize the sad state of the US economy.

While investments tend to lessen the effect of inflation, those of you who like to remain financially liquid or “safe”, trusting in Treasuries, bank deposits, low interest CD's or coffee cans in the backyard, the 3% is a direct tax on those savings.

The government, however, pays off their fixed debt with deflated dollars. The Federal Income Tax is sometimes called a social control tool rather than the primary source of financial support for the government. Inflation is another source.

Let's see, 3% of $14,609,000,000,000 (current national debt), is $438,270,000,000 saved each year by the government. Of course that comes out of the pensions and other investments you have that are invested in Government obligations and other fixed dollar “investments”. Over the years that could add up to real money.

I just checked the value of the dollar in the year I was born, 1940. The calculator came up with this: $1.00 in 1940 had the same buying power as $16.12 in 2011. Annual average inflation over this period was 3.99%. With all the money being printed by a Federal Reserve that is beholden to no one, what will your current savings, pensions, 401Ks, IRAs, college funds, be worth in the future when needed?

Dave Light

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