Inflation

July 1, 2017 (Windy Hill Beach, South Carolina) — The Federal Reserve wants a little inflation. It has a current target of 2% inflation per year. This isn’t an economic projection of what inflation will be, it is a policy target to be achieved. Today’s Wall Street Journal explains that missing that target will constrain interest rate hikes, and that lower interest rates now and in coming period would mean that The Fed won’t be able to cut interest rates as a stimulus tool in the next recession.

What does 2%/yr inflation mean to your savings?

For every $100 you have in savings here’s what it’s worth after each year of 2% inflation:

after 1 year: $98
after 2 years: $96.04
after 3 years: $94.12
after 4 years: $92.24
after 5 years: $90.39
after 6 years: $88.58
after 7 years: $86.81
after 8 years: $85.07
after 9 years: $83.37
after 10 years: $81.71
after 11 years: $80.07
after 12 years: $78.47
after 13 years: $76.90
after 14 years: $75.36
after 15 years: $73.86
after 16 years: $72.38
after 17 years: $70.93
after 18 years: $69.51
after 19 years: $68.12
after 20 years: $66.76
after 21 years: $65.43
after 22 years: $64.11
after 23 years: $62.83
after 24 years: $61.57
after 25 years: $60.34
after 26 years: $59.14
after 27 years: $57.96
after 28 years: $56.80
after 29 years: $55.66
after 30 years: $54.55
after 31 years: $53.46
after 32 years: $52.39
after 33 years: $51.34
after 34 years: $50.31
after 35 years: $49.31
after 36 years: $48.32
after 37 years: $47.35
after 38 years: $46.41
after 39 years: $45.48
after 40 years: $44.57
after 41 years: $43.68
after 42 years: $42.81
after 43 years: $41.95
after 44 years: $41.11
after 45 years: $40.29
after 46 years: $39.48
after 47 years: $38.69
after 48 years: $37.92
after 49 years: $37.16
after 50 years: $36.41
after 51 years: $35.69
after 52 years: $34.97
after 53 years: $34.28
after 54 years: $33.59
after 55 years: $32.91
after 56 years: $32.26
after 57 years: $31.61
after 58 years: $30.98
after 59 years: $30.36
after 60 years: $29.76
after 61 years: $29.16
after 62 years: $28.58
after 63 years: $28.01
after 64 years: $27.45
after 65 years: $26.90
after 66 years: $26.36
after 67 years: $25.83
after 68 years: $25.31
after 69 years: $24.81
after 70 years: $24.31
after 71 years: $23.82
after 72 years: $23.35
after 73 years: $22.88
after 74 years: $22.42
after 75 years: $21.98
after 76 years: $21.54
after 77 years: $21.11
after 78 years: $20.68
after 79 years: $20.27
after 80 years: $19.86
after 81 years: $19.47
after 82 years: $19.08
after 83 years: $18.70
after 84 years: $18.32
after 85 years: $17.96
after 86 years: $17.60
after 87 years: $17.25
after 88 years: $16.90
after 89 years: $16.56
after 90 years: $16.23
after 91 years: $15.91
after 92 years: $15.59
after 93 years: $15.28
after 94 years: $14.97
after 95 years: $14.67
after 96 years: $14.38
after 97 years: $14.09
after 98 years: $13.81
after 99 years: $13.53
after 100 years: $13.26

I’ve read that the US Dollar’s value has inflated away some 95% since first being printed as Federal Reserve Note in the early 1900s. A lot of folks point to Nixon’s abandonment of the gold standard, but about half the inflation during the Fed era occurred before that change. But it does seem to be a self-evident Truth that creating more “fiat” Dollars is inherently inflationary. I started to say money, but chose the phrase fiat Dollars instead because part of the definition of money is “a store of value”. I’m not comfortable in viewing any fiat currency as a long-term store of value. Are you?

What does 2%/yr inflation mean to our nation?

Our federal government has been spending much more than we have. We have borrowed what we need to pay the bills. We’ve accumulated a debt of over $20 trillion, and have made other promises that represent obligations much greater than that. Few have confidence that even the great-grandchildren of our next generation will be able to pay off our debt (personally, I think there’s a great way to unshackle our economy by repealing the 16th Amendment to the US Constitution. Doing that would eliminate the authority of the federal government to tax income. We missed a great opportunity to do this in 2008. Did you notice that then-President GW Bush and the D and R candidates for President all agreed that the only solution to the 2008 liquidity crisis was massive bailout via printing more Dollars? I voted for Dr Alan Keyes for President that year. His urging to say no to the bailout approach didn’t get an iota of press coverage).

But back to the question: Paying back debt using inflated currency has been a tactic favored by fiat-currency issuers for a long time. It has been despised by those who hold the debt, however, and has never — not even once — worked out well for either borrower or lender.

Are you becoming familiar with cryptocurrency?

One of the things I like about cryptocurrency is that it can be designed to ensure that there’s a fixed limit on the number of cryptocurrency coins that can be put into circulation. For Bitcoin, that limit is approximately 21 million coins. At least one cryptocurrency has a design maximum of 120 billion coins — and I wouldn’t be surprised if this coin becomes the global reserve currency.

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