Often referred to as The hidden tax and for good reason.
One of the most used terms you will hear on the news or in day to day life is the word inflation, But what is it? The meaning of the word inflation has been manipulated in recent years, it’s now referred to as the rise in the price of goods, but if you were to look up the word in an old dictionary you’d see it was described as the inflating of the monetary supply by central banks printing money, which they do by lending to governments in exchange for bonds.
The definition of inflation
The ‘new’ definition of inflation
Government issued Bonds
Bonds are basically a certificate guaranteeing they will pay the bank back with interest. Governments have no ‘money’ of their own so these bonds are actually guaranteed by the taxpayer, which is why, when governments attempt to stimulate the economy by pumping in billions of £’s or $’s or any other currency depending on the country, they soon need to invent even more new taxes and the existing taxes are raised to pay back not only the principal, but also the huge amount of interest charged by the banks on the currency created from the new debt. The effect of this inflation and other factors is that even more of the currency is now required to exchange for the goods, the currency has less value because there’s more of it, therefore the prices increase.
The creation of new currency from debt isn’t stopping anytime soon.
Throughout history inflation has risen but then returned to a stable level, such as during and after the Revolutionary War, War of 1812, Civil War, WWI and WWII but during these periods the Dollar was backed by gold which kept the monetary supply in check, all new money created needed to be backed by gold, as gold is limited in supply, the paper money couldn’t exceed the amount of gold backing it. During WWI & WWII gold was moved from other countries, mainly from the UK to the US in exchange for goods and to pay for the war effort, this resulted in the US having the bigger reserve of physical gold and a major factor of the UK Pound losing the reserve currency status to the US.
Alternate Inflation Charts
These CPI charts reflect our estimate of inflation for today as if it were calculated the same way it was in 1990. The CPI on the Alternate Data Series tab here reflects the CPI as if it were calculated using the methodologies in place in 1980. In general terms, methodological shifts in government reporting have depressed reported inflation, moving the concept of the CPI away from being a measure of the cost of living needed to maintain a constant standard of living.
The central banks and governments continually manipulate the official rate of inflation they use so it always appears to be lower than it is, they do this using Hedonics, substitution, weighting, shrinkflation and others. The rate they state has no bearing on reality and the rise in prices experienced by the average person. The official UK inflation rate in October 2020 is 0.7% / in the US it is 1.18% / in the EU it is -0.3%, how does this compare to the rise in the cost of your everyday purchases for food, fuel, rent and utility bills?
Almost all respected economists (who are not on the banking or government payroll) agree that the real rate of inflation is closer to between 7% – 10% and has been for many years, we agree and are fairly sure you will have noticed the cost of living increasing closer to these figures than the 1% – 2% inflation figures used by central banks and governments. It is for this reason, we have included an option to increase the official inflation figures included within our calculators, by your chosen percentage added to the official rate each year across the whole term of the calculations, to better reflect your real world experience and not just what we are told is the rate according to those whom it suits best.
They use the term inflation to describe the rise in prices and to set interest rates on savings and debt, it is therefore in their best interests to portray it as low as possible as a higher rate would push up interest rates, and due to the Quadrillions ($1,000,000,000,000,000.00) of debt in the global financial system in the form of bonds, loans and derivatives to name a few, higher global interest rates would bankrupt governments and countries and collapse the whole financial system (think 2008 financial crisis on steroids).
A manipulated lower inflation rate means lower cost of debt which entices people into more debt through loans, buy now pay later, and property purchases with lower interest rate mortgages continually pushing up the cost of purchasing a home. As the fractional reserve banking system is basically a global Ponzi scheme that requires ever more debt to feed the system, it makes sense they would manipulate the figures lower to ensure you keep taking out more debt to support them while paying you next to nothing, nothing or even negative interest on your savings.
Although this is an extremely important subject which you should be aware of and do further research because it affects your financial health through savings and everyday cost of living, we are attempting to give you the basics you need to protect yourself financially without causing you to lose interest (pun intended). For further reading we have included some links to books here and videos here which further explain in easy to understand terms, and we encourage you to learn a bit more about the main drivers behind how the whole system is designed to transfer your hard work into profit for the banks.
The monetary supply has exploded, inflation is the expansion of the monetary supply and as with anything, the greater the supply the less it is worth. That is basically why prices have risen so much over our lifetime.
Obviously this is a simplified explanation of inflation and in reality there are lots of factors that affect it, but the general rule is, inflation is part of the current, fiat fractional reserve banking system and it destroys your fiat savings over the long term even if they are held in a tax free shelter. Converting your fiat currency to real money, gold, is probably one of the easiest, safest, and best ways to protect your wealth over time.