Purchasing Power: Past, Present, Future- Part 1, by L.M.

How did I end up here? Now I can feel the noose tightening! I learned about the gallows early. I began to notice in the late 80s. Perhaps that is when I became self-aware, no longer like a Jack Russell that has no fear fighting a German Shepard, not one who has no idea how big he is or that he is a dog. A Jack Russell even considers you to be part of the dog pack. Are you willing to become self-aware or perhaps you prefer the pack.

“It is easier to fool people than to convince them that they have been fooled.”- Mark Twain

“Humankind cannot bear very much reality,”- T.S. Eliot

Normalcy Bias: It refers to a mental state of denial in which individuals enter into when facing a disaster or pending danger. Normalcy bias leads people to underestimate and minimize both the possibility of a catastrophe actually happening as well as its possible consequences to their health and safety.

Cognitive Dissonance: It is the mental stress or discomfort experienced by an individual who holds two or more contradictory beliefs, ideas, or values at the same time, or is confronted by new information that conflicts with existing beliefs, ideas, or values.

In 10th grade I was taking college classes in macroeconomics. I began to recognize the role that every American was expected to adopt in this grand play– pretending that the USD has value and ignoring the fact that it is loosing value. In this role I was to pretend that the dollar is strong and desired worldwide, that gold is a barbarous relic, and that tomorrow will be like today (since America always comes through and it never can happen here). I found that our currency system is a debt-based Keynesian pit of hell. I am not part of that dog pack or the sheep herd.

I knew that the USD was a private currency system from my early college days. In that era, the truth had some value. In my macroeconomics courses the founding owners, purpose, and processes of the federal reserve were explained. I understood that I willingly participated in a private currency system owned by the federal reserve. Paper bills identify the owner of that $1, $5, $10, et cetera. The federal reserve owns these notes.

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The United States authorized the printing and distribution of these notes. The United States owns these.

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The terms of the arrangement were not made clear, and the choice to participate was made for me after I was born. It began with a social security card. Since I grew up with it, I had never thought of an alternative currency. Being a private currency system means that the owners can prevent your participation. They set the purchasing power and the quantity of USD created. They can prevent me from participating simply by dropping my credit score. If one has an extremely low credit score they are locked out of the private money system or allowed to participate at a very expensive meager level. Try getting a meaningful job, a low interest loan, or a credit card with a credit score in the 400’s. Why would I continue to participate in a system that steals from me via inflation, attempts to cast a cloud of fear over me by brandishing the IRS, makes or break any rules they wish, kills without conscience, steals gold from anyone in the world, rigs every market, prints USD without ceasing thus reducing the purchasing power, and lies about who they are in their real purpose to manipulate the stated inflation figures to steal cost of living increases. I could go on. Just who in the world do you think the federal reserve is? They are the organization that determines how much currency to create and the value of that currency. Before going any further, it may be important to clarify a riddle:

“By this means government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft.” – British Lord John Maynard Keynes (the father of ‘Keynesian Economics’ which our nation now endures as our ‘currency policy’) in his book, The Economic Consequences of the Peace (1920).

Just what in the world is that supposed mean? Will that help me understand why I feel trapped? Is this an element of the tightening noose? Prepare to be the one person in a million to realize the theft. Then, you may understand just what kind of currency system harms all of us. The value or purchasing power of a dollar does not stay constant when there is inflation. The value of a dollar is realized in terms of purchasing power, which is the amount of tangible goods that currency can buy. When inflation goes up, there is a decline in the purchasing power of currency. For example, if the inflation rate is 2% annually, then theoretically a $10 neck tie will cost $10.20 in a year. Suffering from inflation, your dollar cannot buy the same goods it could beforehand. Look at coffee cans! Give up the same amount of USD but receive less quantity. It’s an inflation live example! At the time this coffee was purchased, coffee was going down in price at the wholesale level. However I am paying the same for more than three ounces less than before! That’s 13% Inflation! This coffee was purchased last year– in 2015. Hmm… $&%$#@!

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Wait, that does not demonstrate that the federal reserve has stolen from me?

The USD loses value or purchasing power when there is inflation. This is possible when there are too many dollars chasing the same goods; a shortage of goods can also cause price inflation, new discoveries can cause inflation, successful market placement or the popularity of a good or item can cause inflation (think Elmo from a number of years ago), or perhaps supply chain problems, such as gasoline pipe lines severed, can cause inflation. Too many dollars chasing the same or fewer number of goods is the most wicked form of inflation because your USD is losing value or purchasing power. You must see this concept in your mind’s “eye”. Yesterday there was a pile of eggs, steaks, corn, 2x4s, concrete, and a pile of USD. Today, the pile of goods is still the same because it takes time, growth, production to increase the pile of goods. However, the federal reserve created an additional 10% of USD out of nothing. No commodity was supplied to justify or trade for the 10%. It takes a number of months for that 10% increase to impact your purchasing power, but when it does you will pay approximately 5-10% extra for all of these “goods”. The problem is that they are creating USD constantly. Think of real inflation between 4%-10% each year since 2007. The inflation rate is much higher, almost double, than what federal government reports. (I will prove this later.) This is extremely difficult on anyone that is living on a fixed income. Typically wages would move to match the effect of inflation, giving you extra earned income but not today.

Today, there is significant uncertainty in the market. Businesses are not willing to spend or grow using their credit or available cash. When there is doubt about future stability, families and businesses alike tend to adopt a wait and see attitude. That is where we are today. The federal reserve has allowed quantitative easing, or creating USD out of thin air, to debase the currency. As you will see later in my story, this gives us an inflation rate that is higher than the federal reserve/federal government can possibly admit. As you will see, the method of arriving at a true inflation rate, as measured by the CPI, has changed after the 1980s. Here I will show you the inflation level from the 1980s and the inflation rate of 2015. You will see quite a circus as the federal government steals purchasing power, cost of living index raises, and a greater negative impact affects the stated Gross Domestic Product (GDP). GDP is a tally of the goods and services produced in the USA in a year. Inflation reduces that number. Really anything that is associated with the rate of inflation is skewed since the federal government changed the method of calculation.

According to a study conducted by Peter Schiff in Gold Silver Worlds January 16, 2016, in the 1980s the government began using the new “chain weighted CPI”. This slight of hand has saved the government, or more appropriately stolen from those dependent on a cost of living increase, hundreds of millions of dollars since.

“Therefore the team randomly identified price changes of 10 everyday goods and services over two separate 10 year periods, and then compared those changes to the reported changes in the Consumer Price Index (CPI) over the same period. The 10 selected items are: eggs, new cars, milk, gasoline, bread, rent of primary residence, coffee, dental services, potatoes, and electricity. Just to make sure, the team ran the same experiment with 10 different goods and services: sugar, airline tickets, butter, store bought beer, apples, public transportation, cereal, tires, beef and veal, and prescription drugs. The results were notably similar.

The prices were analyzed in the period between 1970 and 1980 and then again between 2002 and 2012, because these time frames both had big deficits and loose monetary policy. But they straddle the time in which the most significant changes to inflation measurement methodology took effect.

Between 1970 and 1980 the officially reported CPI rose a whopping 112%, and prices of the analyzed basket of goods and services rose by 117%, just a 4% faster than the CPI. In contrast between 2002 and 2012 the CPI rose just 27.5%. But the basket much faster, accounting for a 62% difference!  So the methods used in the 1970’s to calculate CPI effectively captured the price changes of the analyzed goods, but only got half of those movements more recently.”

It used to be that the CPI, or Consumer Price Index, reflected the cost to maintain a constant standard of living of the same basket of goods, month

after month, year after year. Thus, we see the result of the comparison between 1970-1980 above. Then the fed became enlightened, believing that if one of the items in the basket suffered inflation the consumer would opt for a less expensive alternative, thus allowing them to take the more expensive item from the basket and replace it with the lower cost alternative. Maintaining a constant standard of living implies that you are dealing with the same basket of goods month after month. Now we are swapping out steak for hamburger and hamburger for hot dogs. You think that is dishonest? Wait! There is more!

From the Contra Corner, Jim Quinn, july 20th, 2015, “Lies, Damned Lies & The BLS Inflation Statistics”

The original concept of CPI was to measure the true cost of maintaining a constant standard of living. It should reflect your true inflation of out of pocket costs to live a daily existence in this country.

Instead, it has become a manipulated statistic using academic theories as a cover to systematically under-report the true level of inflation. The purpose has been to cut annual cost of living adjustments to Social Security and other government benefits, while over-estimating the true level of GDP.

Did you see that? If they calculated the rate of inflation using the pre 1980s method, it would have a negative impact on the already pathetic GDP! In this article he compares items that could have been included in the 1980 and prior basket:

“Their weighting of everyday living expenditures is warped and purposefully misleading. Let’s look at the annual increases in some food items we might consume in the course of a month, living in this empire of lies:

  • Ground Beef – 10.1%
  • Roast Beef – 11.8%
  • Steak – 11.1%
  • Eggs – 21.8%
  • Chicken – 3.7%
  • Coffee – 3.4%
  • Sugar – 4.2%
  • Candy – 4.6%
  • Snacks – 3.5%
  • Salt & Seasonings – 5.3%
  • Food Away From Home – 3.0%

Check out the article. You will not be disappointed. Article Lies, Damned Lies & The BLS Inflation Statistics.

It has been observed that gold and silver will rise to offset the loss of purchasing power to a satisfactory degree. For example before 2007 gold sold for $300-$350 an ounce. Today and ounce of gold is $1,320. This is a type of indicator reflecting the direct negative impact of inflation on the dollar. Now you need an additional $1,000 to purchase that same ounce of gold. Did gold go up in value? No! The USD lost value. You need about 300% more of them to buy the same thing. Your house, hopefully, has its value rise over time. Is that a function of rarity? If the home is in a desirable location, perhaps. I’m thinking prime lake shore. Most homes are not in that category. Absent a glut causing deflation, your house would typically rise in resale or replacement cost over time. Is this because there are more people seeking the typical house? In some locations. The house that was purchased 20 years ago for $120,000 has risen to $175,000 or higher! You need more USD to provide the same value of purchasing power. Hopefully, as they say, your house will keep pace with inflation just like your wages and like our ounce of gold above.

Eggheads will argue all day about the cause and effect of inflation. Who cares? I am not interested in inflation caused by rarity, disasters, product popularity, and so on. I am interested in protection against the loss of purchasing power, the quantity and value of the dollar. This is the government stealing from you. How? Number one you pay additional taxes as costs rise. Two, they steal the currency power, energy, or ability. The federal reserve creates $100,000,000,000– one hundred billion USD, and they spend that USD on whatever. They were able to purchase more of their item because the purchasing power of the newly created USD has not suffered the impact of inflation brought about by more USD chasing the same goods. Then the effect of the newly created billion dollars works into the system as inflation, reducing the value, energy, or power of the dollar within a relatively short period of time. Then you have to pay more for the same item. Had the government sold something for 100 billion dollars, they would have placed commensurate value into the market. They could have sold land for the 100 billion USD. This is what we do. If we need some extra currency, we sell something. We do not create currency out of nothing.

There are several variations of currency value fluctuation:

  • Deflation is when the general level of prices is falling. This is the opposite of inflation.
  • Hyperinflation is unusually rapid inflation. In extreme cases, this can lead to the breakdown of a nation’s monetary system. Hyperinflation happened in 1923 Germany, when prices rose 2,500% in one month.
  • Stagflation is the combination of high unemployment and economic stagnation with inflation. This happened in industrialized countries during the 1970s when a bad economy was combined with OPEC raising oil prices. It happened in the USA.

“The financial system has been turned over to the Federal Reserve Board. That Board administers the finance system by authority of a purely profiteering group. The system is Private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people’s money” – Charles A. Lindbergh Sr., 1923

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