Inflation Continues to Gorge Itself On Your Dollars

Inflation continues to grind along, chewing up ever more of our personal income, with no end in sight. In a previous post, I explained that the true definition of inflation is the increase in the supply of money, not the increase in prices. The increase in prices is a result of the increase in the money supply as you have more dollars chasing after goods and services.

The problem with inflation is that except in times of hyperinflation, like Argentina experienced in the 1990s, it creeps along slowly destroying purchasing power. Sometimes it is not even noticed until you look back and compare prices from several years back with prices today and you wonder what the heck happened.

A good example of this is a tool at the Freebuck.com website. If you enter $1 and the year 2001 (the most recent year in the calculator) and then enter the year 1990 and press calculate, you will find that your dollar has lost 26% of its buying power since 1990. By the way, Freebuck.com will tell you that while they use the U.S. Consumer Price Index for their calculator, which claims that, the inflation rate has averaged -4.71% since 1968, they prove that the true rate is closer to 6% annually. If you continue the calculation though 2006 you will find that your money will have lost half of its purchasing power.

In other words, almost everything you purchase on a day-to-day basis will cost you double what it cost in 1990. Dont believe me? In 1990 I paid around $1.20 for gasoline. Today I am paying $2.88.

The reason that this information is so important to you is that in addition to never being able to get ahead, your retirement plans just don't take inflation seriously enough. Especially hard hit will be all of us who happen to have a defined benefit retirement plan. What may seem comfortable today will be woefully inadequate in 10 to 20 years. I know, I can hear you saying that your plan has a cost of living adjustment, but look at the figures being used for that adjustment. This year in Colorado, the official COLA (Cost of living allowance) was just 1.1%. All that does is slow down the inflation monster, and only slightly at that.

To find out how you can protect your retirement, reread some of my earlier posts from March and April. In a future post, I will have some additional information for you that I believe will be very helpful.

In other news, an oil industry insider from Texas, recently wrote that the current situation in the Gulf is much worse than the media is letting on. First we have dozens of oil platforms that are severely damaged or destroyed. Katrina took out the platforms, and Rita got the oil rigs. Several refineries shut down prior to the hurricanes and contrary to what the media says, it takes weeks, not days to restart a refinery. The real issue is that we have not invested in new wells and refineries for years. We may find ourselves swimming in crude oil, while suffering gasoline shortages. The situation could become grim this winter. $4 gas is not out of the question.

In other news, a story that appeared here http://www.vivelecanada.ca/article.php/20050920234253162 claims that the British soldiers who were rescued from an Iraqi prison were dressed in Iraqi clothing when they pulled up to a police station and opened fire. For obvious reasons this story is not being given much time here in the states. For all of you conspiracy folks, this story has ominous implications.