Good News Bad News

Consumer spending up .9% for the month. Yippee, the news reports that sure enough things are rosy. The economy is growing. Happy times are here again. Right?

Wrong. Incomes were only up .7%. That means that we are spending more than we are making. How do you do that? Well, you spend savings. Last year the savings rate for the country was negative .4%. The worst since the great depression. Another way to spend more than you make is by using credit. Either by refinancing yourhome or by using plastic. The problem with both of those options is that at some point, you will run out of credit. Unlike our federal government that just keeps printing more and more money.

And speaking of printing money, how about that inflation rate? Do not go by the numbers published every month. Go here and look at the handy inflation calculator provided by the Minneapolis Fed. Enter an amount for something that you purchased in 1971 and then enter 2006 in the current year and hit the calculatebutton. I think you will be surprised.

I remember in 1974 my father made $15,000 per year as an accountant. I thought that was pretty good at the time. Not now. At that salary you would be living below the current poverty level. So if we enter $15,000 into the inflation calculator how much would that be worth in todays dollars? Surprise, $61,612 a year. Wow! No wonder it takes two wage earners to make ends meet.

The Federal Reserves continual diluting of our money supply is actually a stealth tax. In addition to paying somewhere north of 40% of our earnings in various taxes, our earnings are being further eroded by inflation. That is why it seems that every month we get a little further behind.

Our trading partners are seeing the same thing. They keep accepting our dollars for the things that they manufacture, but every month those dollars are worth a little less. The only way to keep their currency from strengthening against the dollar is to hold on to those dollars or buy US debt. The US,through our inflationary policies has created a global house of cards. When the house collapses it will effect the entire world. That is one reason why our trading partners allow the game to continue.

But allowing the game to continue will only make the correction, when it comes, that much worse. For all of us.