With the Fed Z1 being released yesterday up to the 1st quarter of 2014 I thought I’d recap this, particularly in light of the ECB’s decision to start playing with negative rates.
Let’s define our terms first. The Fed Z1 “captures” all on-balance sheet debts in the economy and the flows that constitute them. That’s what the Z1 is — the canonical flow-of-funds and thus balance sheet statement for the entire US economy.
The rate of monetary inflation is thus trivially able to be computed; since in our system all money is in fact someone’s debt we can simply compare the total outstanding debt from one year to the next to determine the actual rate of inflation — that is, how much your dollar has depreciated in real terms from one year to the next year, simply based on its scarcity (or lack thereof.)
For the 12 months ending 12/2013 this rate was 3.47% — and continued at that rate in the first quarter of 2014.
That is approximately double the stated “price inflation” rate.
The reason for this is simple — technological advancement is supposed to make us able to do more with less effort. That’s the natural consequence of the human condition; we are supposed to advance our standard of living not by rooking other people but by innovation. That innovation means that, for example, we don’t have to dig a hole in the ground to take a shit; we instead pull a lever and flush away our human waste to where it is treated to remove the risk of disease and then released back into the environment. We don’t need to travel to a source of fresh water with a bucket, we instead turn a tap and get clean water from it. We don’t need a horse to travel 20 miles in the period of a few hours, we instead get in our car and drive there in a half-hour.
Central banks and governments instead promote the idea of “stable and low” inflation. The natural economic state, however, is in fact deflationover time due to technological progress.
The common lie is that deflation is “bad” because it provides incentives for you to avoid spending today on what you could buy cheaper tomorrow. That’s the entire point of technological advancement — would you prefer instead to have to buy ice to put in your “icebox” rather than having mechanical refrigeration in your kitchen?
The “incentive” to not buy today in the hope of technological innovation making your purchase cheaper tomorrow is not bad, it’s good! How can being able to do more with less be bad? It’s only bad if you succumb to the outright scam promoted by government officials and “economists” irrespective of party affiliation that the price of a good or service should and will rise in the future!
Let’s be perfectly clear — the only way that happens — that goods and services become more expensive over time — is through either regression in our technology (that is, we become more-stupid over time and actually propel ourselves backward as a species) or someone steals a percentage of what you produce through some mechanism so that you are effectively enslaved.
From the beginning of 2001 to the end of 2013 the amount of “moneyness” in the system has risen by 111%. That is, it has more than doubled.
In the same timeframe the population of the United States rose from 282 million to 309 million, an increase of about 9.6%. In other words adjusted for population your dollar only buys half as much as it did in 2000.
Put another way the price of everything assuming constant technology has approximately doubled and your purchasing power has been cut in half.
The amusing part of the debate is that people will claim that GDP went from $10.5 trillion to over $17 trillion while attempting to claim that this is “all good” in terms of impact to you. Unfortunately while that did indeed happen credit in the system rose faster, so your net position was damaged rather than enhanced.
The result is shown here. You are losing ground again; note the decreasing light blue shading on a downslope since (ironically) 2009. At the same time asset prices have gone up — what hasn’t gone up is your progress measured against net change in the base of money and credit. In short your purchasing power continues to be systematically destroyed.
This didn’t happen accidentally. If this had not been intentionally perpetrated you would have much more in terms of “things” and buying power than you have today, simply because technology improves lives. You instead have less because of the intentional theft of your purchasing power and you refuse, almost to a man, to do anything about it other than throw partisan barbs around and bleat about the minimum wage.
Your buying power has been intentionally stolen from you by President Bush, President Obama, Ben Bernanke, Charwoman Yellen, Nanci Pelosi, Harry Reid, John Boehner and of course Lloyd Blankfein and his other buddies on Wall Street.
It was not an accident and it was not a natural event.
It was organized theft at all levels of government and commerce, orchestrated by those in power.
Until and unless you, the common man, demand and put a stop to it which means that you must stop demanding the impossible through the political process and cut the shit, this will continue.
And both this trend and the markets will continue right up until they can’t — that is when your self-theft and racketeering folds back to the extent that the economy collapses upon itself.
That day is approaching — fast.
Wake up America and cut the crap.
But whatever decision you make don’t bleat about my decision to cut back on what I do here and politely but slowly walk away. For more than seven years I’ve been documenting this nonsense in the hope that a critical mass of people who give a damn will assemble themselves and put a stop to it. It hasn’t happened, which is fine — that’s a choice, and one I respect. But that respect has to go both ways when I decide that the effort being made is futile, and thus no longer worthy of my time.
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