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Inflation Explained: Your Role As A Milk Cow

Courtesy of ZeroHedge. View original post here.

Authored by Jeff Thomas via InternationalMan.com,

Traditionally, inflation has been defined as “an increase in the amount of currency in circulation.Such an increase almost always causes an increase in the cost of goods and services, since, more plentiful currency units lowers their rarity, as compared to the supply of goods and services, which remains roughly the same. Therefore, it shouldn’t be surprising if a 20% increase in the amount of currency units translates into a 20% increase in the price of goods and services.

Unfortunately, in recent decades, even dictionaries have been offering a revised definition of inflation, as “an increase in the price of goods and services.” This is a pity, as it makes an already confusing subject even more difficult to understand.

This is especially true for the average guy who has a minimal understanding of economics, but does realise that, even if his wages increase (which he regards as a good thing), he never seems to get ahead. In the end, he always seems to be worse off.

So, let’s see how simply we can break this down. And, let’s do it from the layman’s personal point of view.

Let’s say that you’re paid $4000 per month. You budget for housing, food, clothing, transportation, etc. Let’s say that that adds up to $3800 per month, and you’re hoping to put $200 per month into savings. Often that doesn’t happen, as unplanned expenses “pop up,” and must be paid for. So, in the end, you save little or nothing.

In the meantime, you’re daydreaming about buying a new car, but it can’t be bought, because you don’t have any money to allocate to it.

Then, your boss says that the recent prosperity has resulted in a big new contract for the company that allows him to give you a raise of $200 a month.

This is your big chance. You go to the car dealership, buy the car, and arrange for time payments of $200 per month to pay for it.

However, what’s rarely understood is that the theoretical “prosperity” is the result of governmentally induced inflation. What appears to be prosperity is merely a rise in costs and, along with it, a rise in your wages.

You appear to be “getting ahead,” but here’s what really happens…

The inflation that resulted in your pay rise also raises the prices on most or all other goods and services. So, instead of spending $3800 on expenses every month, your costs have risen to, say, $4200.

So, only months after your pay rise, you become aware that, not only are all your expenses higher (which you didn’t figure on when you bought the car), you now have the extra monthly obligation of the $200 car payment.

A year later, you look back and say to yourself, “Just when I was finally getting ahead, just when I was realizing my dream to have a new car, all those greedy businesspeople raised their prices because they just want to be rich, and I ended up a loser.”

Not so. The businesspeople raised their prices for the same reason everyone does during inflation—because their costs are also higher and they must either raise prices or go out of business.

So, in effect… no one got ahead.

But, worse, you got behind. Because, now, in addition to your monthly expenses, you have debt obligations, and buying on time is alwaysmore costly than paying as you go.

As time goes on, you run into emergencies of one type or another that dip into your meagre savings. You must renegotiate your debt with the bank in order to keep your car and, of course, the bank demands a greater percentage than before, assuring that your economic situation will only get worse.

Ergo, inflation has not been a boon, but a curse.

And that, in fact, is exactly the idea. Banks figured out ages ago that, although people will only tolerate so much taxation, they’ll not only tolerate, but welcome the hidden tax of inflation. The illusion that they’re “getting ahead” gives them the false confidence to take on debt, which will, over time, cripple them.

The purpose of bank-created inflation is to extract wealth from the populace.

By regularly increasing the amount of currency in circulation, banks create an environment in which the concept of debt appears to be beneficial. As a result, virtually everyone in today’s society not only has debt; he actually believes that he couldn’t improve his life except through debt.

So, that’s essentially how inflation works. However, there’s a further knock-on effect from inflation that comes with retirement.

When retirement arrives, almost no one who is caught up in the system described above has found a way to get out of debt. Inflation always gobbles up whatever advances he feels he’s made, because inflation itself created those imagined advances.

Just before retirement, most people have their most expensive houses, cars, etc., and appear to have prospered, but they also have the greatest level of debt that they’ve ever carried.

If they’ve been careful, they may have savings and/or investments that they hope will carry them through their twilight years. But they quickly find that inflation continues after they retire. Savings in banks no longer earn money. In fact, they do the opposite. Inflation takes more than the paltry interest savings received, resulting in an annual loss on any money held in banks.

But, inflation continues to march on, assuring that the retiree’s costs will continue to rise, even as his savings decline.

In essence, the inflation concept was invented by banks as an invisible tax—a means by which they could extract wealth from the populace.

And, here we get back to the original complaint of the individual. As he tries to balance his chequebook or to plan for his retirement, he scratches his head and wonders, “How is it that no matter how much more money I make, I never seem to get ahead?”

In effect, the individual is used by the banking system as a milk cow. For his entire working life, inflation is carefully adjusted to extract as much monetary value from his labours as possible, whilst still leaving him capable of continued production.

Pretty grim… So, is that it, or is there a way out?

Well, to begin, it would be very helpful to exit any country where the dual monetary drains of taxation and inflation are prominent. (By leaving, you may take an initial step down, but, over the long haul, you’re more likely to prosper.)

An additional move would be to refuse to borrow money for anysituation. Yes, it will mean that, as your friends show off their new cars, you’ll be driving an older model. They’ll also live in nicer houses than you and they’ll “own” their own house before you do. But, at some point, since you’re free from debt, you’ll pass them by and eventually retire well.

By understanding inflation, and acting on that understanding, the odds of living your life as a milk cow can be greatly diminished.


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