American Slave: Freedom Killer #2 – Prices increase faster than your paycheck

Your income probably doesn’t keep up with price increases (inflation).  How much more do you pay for houses, cars, meat, sugar, vegetables, and milk than 10 years ago?  Did your salary go up by the same percent?  Answer: likely not even close.

Even if you look at the politically adjusted census bureau data for historical income , we have less buying power than we had in the 1990s (check out related info on shadowstats.com).  In short, the government is allowing the value of your dollars to be destroyed by creating more dollars than ever before , which means those dollars buy less, which means it takes longer to buy your freedom.

In case you aren’t sure what inflation is, here you go:  Inflation is simply an increase in the currency supply that results in an increase in prices – if we “print” a bunch of dollars, it will eventually take more dollars to buy the same stuff.   How do those printed dollars get into the streets and your pockets?  Here’s the typical path:

1. The Federal Reserve prints the currency and gives it to banks for almost no cost.  Note that the Federal Reserve (a.k.a. “FED”) is an independent central bank with “oversight” from Congress; it is NOT a U.S. government entity, even though the clever government description of the FED makes it sound like the FED is part of the government.
2. The banks then loan the cheap FED money to companies and people, often for very low interest rates.
3. Companies use that cheap borrowed money to do things like buy back their own stock, which creates fake increases in the company’s stock price (lots of that happening since 2009).  Individuals use the borrowed money to buy stuff like houses and food.

So companies and people are spending a bunch of borrowed dollars and those borrowed dollars increased a lot faster than the amount of stuff to buy with those dollars.  More dollars to buy the same stuff = it takes more dollars to buy that stuff.

Now, back to meat, sugar and houses vs. your salary:  Because the number of dollars you need to buy stuff has gone up much faster than your paycheck, you now have to work longer to buy the same stuff.  And that is why inflation makes it harder for you to buy your freedom.

Important note here, especially if you receive Social Security or food stamps – the U.S. government has changed the way it reports inflation  to make it look like inflation is far lower than it actually is  .  Why?  Because government payouts for social security, military personnel, food stamp recipients and others costs are tied to the government reports on inflation.  Higher inflation means the government has to pay more, so politicians voted to change the way CPI (Consumer Price Index) & inflation were officially reported so they could pay us less.

Income inequality in the United States has nearly doubled since 1967:

I built the household income chart below using 2015 data from the U.S. Census Bureau.   It demonstrates the effect of inflation and growing income inequality over time.  All numbers are in 2015 dollars.  Here are the highlights:

• In 1967, the top earners in the lowest 20% of U.S. incomes made about $3,000 (in 2015 dollars) and the poorest of the top 5% of income earners made $19,000…so the poorest of the top 5% made 6 times as much as the richest of the bottom 20%.
• In 2014, the top earners of the bottom 20% made about $21,000 and the lowest earners in the top 5% made $206,000…so the poorest of the top 5% made almost 11 times as much as the richest of the bottom 20% – about twice the income gap in 1967.

The number of households in the United States, the number of households with only 1 person, and the number of households with only 1 parent have all about doubled since 1967 – most wealthy households have 2 earners:

I grabbed the household trends chart below from the Census Bureau site.  It shows the increase in single family households and increase in single parent households over time.  Highlights:

• In 1967, there were about 60,000 households in the United States; in 2014, about 125,000 households…so the number of households more than doubled in about 50 years.
• In 1967, about 15% of households were one person; in 2014, about 27% of households were one person.  If you add single parents to that, single adult households were 20% in 1967 and 37% in 2014.
• In 1967, about 3000 of 60,000 households (5%) were single parents; in 2014, about 13,000 of 125,000 of households (10%) were single parents.

These charts show that the rich got richer and the poor got poorer.  Surprised?  Nah.  Inflation is one of the primary reasons that the rich get richer and the poor get poorer.

The rich have the ability to use inflation to their benefit by buying assets (like houses, gold etc) that see big price increases during inflationary cycles, then sell those assets before prices crash.  After prices crash, they can buy the same assets back at cheap prices, wait for the next inflationary cycle and sell again.  Repeat.  Cha Ching!!

Wealthier people also tend to be better educated on how to make money and have access to expert advisers (wealth managers, accountants, stock brokers et al.).  Poorer folks who can’t afford to buy low, wait, and sell high like the rich – or who just can’t afford much of anything, including expert advice – are just stuck paying higher prices for shelter, food and clothes without seeing higher wages to match.  So, they tend to get poorer and their kids are likely to be stuck in the same cycle unless someone resolves to break it.