The grim reality is that real
inflation is 7+% per year.
This week, I've noted
that Consumer Prices Have Soared 160% Since 2001while
under-the-radar declines in value, quantity and quality are
forms ofInflation Hidden in Plain Sight.
What would happen if the real
rate of inflation was revealed? The entire status quo would immediately
implode. Consider the immediate consequences to Social Security,
interest rates and the cost of refinancing government debt.
Unbiased private-sector efforts
to calculate the real rate of inflation have yielded a rate of around 7% to 13% per year, depending on the
locale--many multiples of the official rate of around 1% per year.
So what happens if the status
quo accepted the reality of 7+% inflation? Here are a few
of the consequences:
1. Social Security
beneficiaries would demand annual increases of 7+% instead of zero or near-zero
annual increases. The Social Security system, which is already distributing
more benefit payments that it is receiving in payroll tax revenues, would
immediately go deep in the red.
(Please don't claim the SSA
Trust Fund will be solvent for decades. I've dismissed the fraud of the
illusory Trust Fund many times. The reality is the federal government has to
borrow every dollar of deficit spending by Social Security by selling more
Treasury bonds, just as it borrows every other dollar of deficit spending.)
The Fraud at the Heart of
Social Security (January 17, 2011)
The Problem with Social
Security and Medicare (July 17, 2013)
The Social Security system
would be revealed as unsustainable if real inflation (7+% annually) were made
public.
2. Global investors might start
demanding yields on Treasury bonds that are above the real rate of inflation. If
inflation is running at 7%, then bond buyers would need to earn 8% per year
just to earn a real return of 1%.
Central states are only able
to sustain their enormous deficit spending because interest rates and bond
yields are near-zero or even below zero. If the federal government suddenly had
to pay 8% to roll over maturing government bonds, the cost of servicing the
existing debt--never mind the cost of borrowing an additional $400 billion or
more every year--would skyrocket, squeezing out all other government spending
and triggering massive deficits just to pay the ballooning interest on existing
debt.
Bond yields of 8+% would
collapse the status quo of massive government deficit spending.
3. Private-sector interest
rates would also rise, crushing private borrowing.How
many autos, trucks and homes would sell if buyers had to pay 8% interest on new
loans? A lot less than are being sold at 1% interest auto loans or 3.5%
mortgages.
4. Any serious decline in
private and state borrowing would implode the entire system. Recall
that a very modest drop in new borrowing very nearly collapsed the global
financial system in 2008-09, as the whole system depends on a permanently
monstrous expansion of new borrowing to fund consumption, student loans, taxes,
etc.
How many billions of dollars
will be siphoned off the debt-serfs, oops, I mean students, should student
loans be issued at interest rates north of 8%? (Some private student loans are
already in the range of 8%; where will those go if inflation is recognized as
running at 7% per year?)
The grim reality is that real inflation is 7+% per year, and this
reality must be hidden behind bogus official calculations of inflation as this
reality would collapse the entire status quo. Super-wealthy
elites earning 10+% yields on stock, bond and real estate portfolios aren't
particularly impacted by 7% inflation; their real wealth continues to expand
nicely.
Who's being destroyed by 7+% real inflation? Everyone whose income has
stagnated and everyone who depends on wages rather than assets to get by--in
other words, the bottom 95%.
