Federal Money Policy Deflates Your Savings 9% Per Year !


The Government’s Most Insidious Thief is Not Taxes;  It’s Inflation

In the field of data analysis, it is critical to “back test” your estimates to make sure they played out accurately.   Let’s back test the FED inflation number for 16 years to see how much error they exhibited.

When I ran the numbers in Excel, I found the modern inflation number is 1.51 since year 2000, but the original, and probably the most honest according to Campbell’s law, is 3.84.  So all your returns in your investments since year 2000 shrank by  1./3.84=74% over what you have now.   That’s 8.8 percent a year over the years 2000-2016.

This inflation is due to all unbacked credit issued by the federal government:  Tax cuts implemented without spending cuts, benefits like social security which are not balanced by commensurate taxes, monetary policy like QE, and fractional reserve money now effectively printed by the banks for mortgage loans.

Here is an example: 

Say you had invested $1 million in year 2000, and your investments grew at 8.8% per year (simple interest = 1.088^16 ), amassing $3.84 million dollars in 2017.  To subtract inflationary losses, your financial planner will say you must divide out the 16 year inflationary effects of “1.51” from the “post-1990” CPI described in John William’s article.   This means you have only $2.54 million of “basket of goods” buying power – after accounting for inflation.

But if you used the more honest “1980” CPI formula with 74% deflation over the same 16 years, the $3.84 million of investments deflates back down to $1,000,000 dollars – zero return on investment.

In order to make a profit above the Reagan-era “basket of goods”, an investor would have to top 8.8% a year, on average, in years 2000-2016.

Simply changing the inflation measure to a more accurate one – while no one was really looking – has made you unaware you lost some of your savings, based on 2 trusted gov’t measures of inflation.

What is inflation?

If you know what inflation means, you know inflation is the “thief” of all monetary worth changes.   What does this mean? It means if you want to measure worth change, you MUST have a measure of inflation to normalize, or divide out, the measured worth change.

For example, if worth increased by 5 percent, but inflation was 6 percent, the item is worth around 1% less:

1.06 * 0.94 = 0.99 = -1%

But, if worth went up 7% with 6% inflation, then the worth increased by around 1%:

1.07 * 0.94 = 1.01 = 1%

Inflation of products, is deflation of savings.

Inflation of products you buy, is the same as deflation of your savings and earnings.  This is because the inflated priced of the products reduces the buying power of your future savings.  “Two sides of the same coin.”

“Inflation” is intended to be an educated guess of inflation on a large group of items, for gauging broad economic changes, like a food basket.  Based on a “basket of goods”, this lengthy “formula” has been changed by the Federal government 2 times.  These “weighting” changes bias the inflation result – and can be misleading toward the desired outcome of the equation writer – the politician trying to, say, hold down social security increases based on their inflation measure – the CPI:  Consumer Price Index.

Since gov’t has grown increasingly dishonest, and Campbell’s Law mandates dishonesty will increase (Princeton economist, in 1973), I decided I’d use the first gov’t inflation number, and predictably the most accurate, to back test the last inflation estimates.  (John Williams, a reputable economic analyst with tons of papers, provided the research of the Clinton, Bush, and Reagan inflation formulae.)

When I ran the numbers in Excel, I found the modern inflation number is 1.51 since year 2000, but the original, and probably the most honest according to Campbell’s law, is 3.84, so all your returns in your investments since year 2000 shrank by  1./3.84=74% over what you have now.

Your savings are depreciating at 8.8% a year.


John D. Lofgren @ Junto Club: www.atlasShouts.com
Author of “Atlas Shouts”  #13 rated Money book on Amazon:
Atlas Shouts, The Movie:  https://www.youtube.com/watch?v=yrPgka9SBJ4


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John Lofgren spent over 10 years researching US economic history, identifying best practices, and exposing findings in public forums in researching his well reviewed book, "Atlas Shouts". John earned degrees from the University of Florida and the University of Central Florida. A computer engineer, he holds five patents and has thirty years of design experience in electronics and design automation. He is also an accomplished lead singer and guitarist in a Motown/Classic Rock band.