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Inflation Report
By Michael Hodges - email
updated Sept. 2007
- a chapter of the Grandfather Economic Reports -

INFLATION - WHO SAYS IT'S DEAD?

88% EROSION OF PURCHASING POWER - AND CONTINUING

- a dollar in 1950 will buy only 12 cents worth of goods today, 88% less than before -

Inflation in my adult years increased average prices 1,000% or more -
example 1: a postage stamp in the 1950s cost 3 cents; today's cost is 41 cents - 1,266% inflation;
example 2: a gallon of 90 Octane full-service gasoline cost 18 cents before; today it is $3.05 for self-service - 1,870 % inflation;
example 3: a house in 1959 cost $14,100; today's median price is $213,000 - 1,400% inflation;
example 4: a dental crown used to cost $40; today it's $1,100 - 2,750% inflation;
example 5: an ice cream cone in 1950 cost 5 cents; today its $2.50 - 4,900% inflation;
example 6: monthly government Medicare insurance premiums paid by seniors was $5.30 in 1970; its now $93.50 - 1,664% inflation; (and up 70% past 5 years)
example: several generations ago a person worked 1.4 months per year to pay for government; he now works 5 months.
And in the past, one wage-earner families lived well and built savings with minimal debt, many paying off their home and college-educating children without loans. How about today?

Few citizens know that a few years ago government changed how they measure and report inflation, as if that would stop it - - but families know better when they pay their bills for food, medical costs, energy, property taxes, insurance and try to buy a house.

Is inflation a threat to society? Consider this famous quote:
"There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose." Lord John Maynard Keynes (1883-1946), renowned British economist.

DEFINITION OF INFLATION:
Inflation is the loss of a constant purchasing value of the dollar,
caused by an increase out of 'thin air' of the supply of money and debt creation by the financial system

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10 graphic pictures help tell the story
(a picture is worth a thousand words)

This Inflation Report is a chapter of the Grandfather Economic Report series, showing serious economic and education trends facing today's families and youth, compared to prior generations.

Quick Links to sections this report
CPI Since 1800, Value of Dollar since 1950, For the Grandchildren, Annual CPI, Revising CPI, What is the CPI?, Foreign Comparison, Money Supply, Student Loan Debt, House Inflation, Mortgage Interest Rates, Commodity Index, Bottom-line

QUESTIONS:

1. For 150 years America experienced relatively stable consumer prices, but in the last 50+ years prices have soared. Today's inflation is highest in 15 years. What happened?
2. Why do we pass on to young families and youth a currency which has lost 88% of its purchasing value?
3. Should we not provide annual rates of inflation of less than 1% as was achieved in the past, when family incomes consistently zoomed upward with one wage-earner per family - - and more mothers had a real choice to stay home and raise the kids?
4. Should we accept statements that inflation is "under control" when nothing basic has changed to restrain the banking system from creating money and debt out of thin air, meaning the dollar's internal value may drop another 58% before our infants are out of college - and decrease by another 88% before they reach retirement age?
5. Why do we have a government mandating inflation protection via cost of living adjustments for the incomes and medical insurance of government employees (federal & state/local) - - while many, many families pay extra taxes to provide that protection for others with no such guaranteed protection for themselves?
6. Should we be proud today's families pay a higher share of their incomes on all taxes than before - another form of inflation?
7. Should we be proud that inflation in housing prices has caused the highest percentage debt load on families in history?
8. Should families be proud to take the 'buying power hit' caused by the fact today each working person must now support 3 times more state & local government employees than before, in addition to supporting more seniors per capita?
9. Should we feel good about future prospects when the nations money supply has been driven up at rates 2-3 times faster than economic growth and much faster than that of our major trading partners, meaning more and more debt creation and more trade deficits are needed to support a dollar of growth?
10. Should we 'feel safe' accepting official cost of living index reports when we know measurement criteria were dramatically revised during the 1990s to minimize same, plus recognizing that the CPI does not include cost impacts of government and taxes - - the largest spending component in the entire economy - - and does not reflect manipulated asset bubbles in stocks and real estate, or home prices?
11. U.S. oil production peaked in 1970 and world production is expected to peak in the next 5-15 years. We now import over 60% our needs. Energy inflation appears as a 'ticking time-bomb.'
12. U.S. inflation rates are higher than competitor nations, as U.S. trade deficits soared to new records each year indicating declining international competitiveness, causing us to become the world's greatest debtor.

INFLATION HISTORY

Stable consumer prices for 125 years.
And then, prices soar up, up and away.

This chart shows the Consumer Price Index (CPI-U) from 1800 to today, a period of more than 200 years.

For the first two-thirds of this chart the consumer price index oscillated at or below the 50 point price index mark, indicating relatively stable consumer prices for nearly a century and a half.

Thus, 150 years of near nil inflation.

But in the past 50 years, especially after 1971, the consumer price index in this chart took off - -
- - inflating prices more than 1,000 times higher.

Note: prior to 1913, a period of relatively stable prices, there was no Federal Reserve Bank. This chart calls into question the stated purpose of creating a Federal Reserve in 1913 to assure price stability, when thereafter prices soared instead of becoming more stable. This chart appears to shout that > > the Federal Reserve was created for the purpose of generating inflation.

The data source for this chart is from the Minneapolis Federal Reserve Bank, incl. data from the U.S. Bureau of Labor Statistics (link #12). (The chart denotes U.S. citizens for the first time ever were disallowed in 1933 (FDR) from exchanging dollars for gold; in 1971 (Nixon) foreigners were likewise disallowed and the dollar ceased being backed by any gold standard.)

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With those soaring prices, let us now look at what happened to the purchasing power of a single dollar - - from 1950 to today > >

88% Decline of a Dollar's Purchasing Value since 1950

This chart shows an 88% reduction in the value of a dollar (its internal purchasing power) since 1950, where a dollar of 1950 is worth but 11.9 cents today - based on the consumer price index. Restated, an average cpi item costing $10 in 1950 costs $88 today.

Note in the chart: The accelerated fall of the domestic purchasing power of the dollar from 1965 to 1980 was due to higher annual inflation rates, which was a period when government social spending ratios were rising much faster than general economic growth.

As the chart shows, starting about 1981 and The Reagan Era, the decline of the purchasing power of a dollar started slowing dramatically - a significant rate of change in inflation compared to the prior several decades.

Now look to the right side of the chart, which shows an apparent slow-down in recent years. Actually this curve should point down faster after 1995, since in 1981 and 1995 the federal government changed the way their people measure the cost of living index by a cumulative 4.8% - - which otherwise would have placed the today's value of a 1950 dollar at 9 cents using the old criteria, not the 11.9 cents shown via the new criteria. (this is discussed further down this page).

For this chart, the average annual inflation rate since 1950 was about 4%. To some people 4% doesn't sound like a big number. However, compound 4% over 50+ years and the 1950 dollar is worth but 11.9 cents today - - as seen in the chart.

(Compound it out another 50 years into the future to 2056, when today's 15-year old will retire, and the value of today's dollar will be worth just 12 - - another 88% plunge - - bringing it to a value of just 1.5 cents when compared to the 1950 dollar.)

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It takes $10,000 cash today to purchase that which $1,190 would purchase in 1950. And with higher combined federal & state/local tax rates today compared to then, it takes even more. Typical example: you need 39 cents as of 2006 to purchase the same stamp that cost just 3 cents in 1950 - - a 1,300% price increase - - and nobody dare claim any quality improvement for that increase.

Had annual rates not exceeded the approx. 1% average inflation rate of 1950-65 (see chart below) for the entire period shown it would take just $2,200 today (not $10,000) to be equivalent to the $1,190 of 1950 - meaning 78% fewer dollars to have the same buying power. No wonder many mothers were forced into the work-place to help make ends meet, as shown in the Family Income Report. If most of the men and women are today in the work-force to make ends meet, who else can a family send into the work-force during the next decades? Their children? And/or, just open up the southern borders even wider?

Who benefits from this performance? Answer: the financial sector and governments at all levels (and proponents of big government over families), as revenue streams are accelerated by both tax bracket creep, extending the caps for social security taxes, property taxes, and sales taxes. Inflation camouflaged government growth, as it expanded to consume and control a larger share of the economy.

And, government spending is mostly consumptive spending that adds inflation via increased demand of its employees and transfer recipients, without compensating productivity. Few deny that government is significantly less efficient and productive than the private sector. As it expanded its relative size, and as credit/debt soared, such contributed to more national inefficiency and therefore to a reduction in the purchasing value of a dollar.