American Wealth Eroding
by Bill Sardi
Recently by Bill Sardi: The Curse of the Coffee, Tea and Beer Drinkers
In dollar terms, what does Presidential Candidate Ron Paul mean when he says: "The standard of living is going down for a lot of people on fixed incomes." What does Mr. Paul mean when he says this is what happens when "a country destroys its money" and "destroys or eliminates the middle class." What does that mean in dollars and cents?
It means the American people are aggregately losing the value of their banked money at the rate of $16,881 per second, $970,904 per minute, $58,254,253 per hour, $1.398 billion per day, or $510,304,260,000 per year (that's $510 billion!). That is the most conservative figure, based upon a 7% rate of inflation. The erosion of American wealth could be as high as $780 billion/year if a higher 10% inflation rate is employed.
How did I come up with these numbers? Americans have $8.505 trillion on deposit in American banks (FDIC numbers: includes $6.410 trillion in interest-bearing accounts, $1.848 trillion in time deposits like CDs, with an additional $2.094 trillion in non-interest bearing accounts).
The estimated yield (interest) on that banked money is less than 1% today. Let's say Americans are getting 1% interest on $8.505 trillion. That would amount to $85.05 billion. Now take away ~18% of $85.05 billion the federal government would be in taxes, or $15.3 billion, and this actually amounts to $69.78 billion gained that must be balanced against inflationary losses.
The federal government says the rate of inflation is around 3%. However, the real rate of inflation is not the 3% figure government provides (government calculations don't include the cost of fuel or food, for example). According to ShadowStats economist John Williams (www.shadowstats.com), who reverts back to ways the government calculated the rate of inflation in 1990 and 1980, Americans are losing 7% to 10% of purchasing power of their banked money annually.
Using the 7% figure, that comes to a $510 billion erosion of saved money per year. Using the 10% inflation rate, Americans are losing $780 billion of their banked money via inflation per year.
In just 5 years $8.505 trillion in aggregate banked wealth will diminish to as little as $4.250 trillion in purchasing power using the 10% inflation estimate. John Williams shows savers who deposited $100 in banked money in 2006 would need $160 today to buy the same amount of goods and services as 5 years ago.
What an insult: bankrupt banks offer dividends to stockholders
To make matters worse, American banks, which were imprudent in offering home loans, temporarily creating a false demand and a crashing real estate bubble, have been delivering small dividends to bank stockholders since the crash. It's a wonder why the Federal Reserve allows these insolvent institutions to declare dividends at all. But Americans banks are being allowed to cook their books and dream up profits.
The Federal Reserve is now unleashing American banks from restrictions on dividends. This means Americans are essentially capitalizing Americans banks at a loss while banks are divvying out dividends to make it falsely appear they are solvent. Bank stockholders, including many bank executives, will now reap even larger rewards at the expense of the savings class.
What to do? (It's not pretty)
Methinks if Dwight D. Eisenhower or John F. Kennedy were President during these trying times, and they realized Americans' personal wealth is being wiped out, they would take some strong action. It's obvious what must be done.
The central Federal Reserve Bank which currently supplies banks with cheap money (0.25% interest) needs to increase its interest rate to lender banks so that home mortgage rates go back up to around 10% and bank depositors would be rewarded with ~7% interest, and bankers with the remaining 3%. The stealth robbery of the people's money would cease.
But the real estate industry is going to cry foul as it has been using low interest rates (now as low as 3.9%) to jump start sales again. But that is the very manner in which the real estate bubble was created, with low teaser interest rates. Lenders have driven the real estate industry into a box canyon. Who could afford a home mortgage at 10% interest these days? But to realize that 3.9% mortgage interest rates aren't revitalizing the real estate industry and the low interest rates on banked money are eroding Americans of their savings, is a double whammy. Let the real estate industry wallow in the mud but spare the savers before the wealth of Americans vanishes.
Essentially future home buyers are being subsidized by savers. It's a miserable state of affairs.
Planned inflation erodes personal wealth
Ben Bernanke, the chieftain at the Federal Reserve, unashamedly says the nation's central bank, fearing deflation more than inflation, has established a buffer rate of inflation, which appears to be around 3% officially (but recall John Williams' 7-10% inflation rate).
So let's consider an example of a single-mom who gave birth to a child in 1990 and was making $36,000 at that time, and whose salary has not subsequently risen. And let's say today, 21 years later, that child is ready to enter the work force for the first time. And that mother's goal has been to try and make sure her child will do financially better than she did.
Thanks to Mr. Bernanke's planned inflation, that child, now entering the work force, will have to make $62,317/year beginning salary just to equal the purchasing power of his/her mother 21 years ago. This is what the Federal Reserve has done to the value of American money. Does anybody wonder why Ron Paul says the Federal Reserve must be taken down?
Soon, food stamps for all
Incomes are not keeping up with inflation and more and more Americans are slipping into poverty. The Census Bureau now says nearly 1 in 2 Americans are living near the poverty line and food stamps are at an all-time high. An estimated 46 million Americans are now living on food stamps. Five more years of this insanity and the majority of Americans will be on food stamps.
When Mr. Paul says he wants to derail the Federal Reserve Bank and put it out of business it is because it has failed to live up to its objective – to stabilize the value of money.
The Federal Reserve deceives your kids
The Federal Reserve Bank website posts the following graphic which shows a $50/month savings plan adhered to for 30 years (an $18,000 investment) @4% interest (recall, the current interest rate on banked money is less than 1%) would grow to around $35,000. But the Federal Reserve does not calculate for inflation or taxes here. Calculating for an 18% tax rate on $17,000 added from interest would mean $3000 needs to be deducted from that the gains. Then inflation, even using the government's own low rate of inflation, would more than wipe out any remaining imagined gains.
Yet the Federal Reserve continues to encourage Americans to save. It's obvious why. Savings provide free capital for American banks which the Federal Reserve represents. This is simply masked government racketeering. Under the flag of government, the masses are being plundered. The only Presidential candidate who makes an issue out of this is Ron Paul. It is because he knows the inside workings of government, banking and lending. The masses are never taught any of this.
Another point is that the Federal Reserve is bold enough to pull off this ruse on young American children. The Federal Reserve website has an online education section for American children which never mentions the erosion of banked money via inflation.
Critics of Ron Paul: I'll take alleged bigotry over thievery any day
Today I'm hearing critics allege Ron Paul is a bigot. Fine, I'll take bigotry any day compared to thievery.
I'm hearing that Ron Paul is a foreign policy isolationsist. Fine, the US is simply bribing foreign leaders now with borrowed money, providing military defense by treaty to foreign nations with borrowed money, and maintaining military bases worldwide with borrowed money. The whole mess will inevitably collapse and vindicate Mr. Paul anyway.
Like the collapse of the British Empire, the Pax Americana will crumble and the US may face a day when it can't even afford to bring its own naval warships back to home port like the Russians who couldn't maintain the missile silos or submarines as the Berlin Wall fell in 1989.
The only hope for America is to put the Federal Reserve Bank out of business. It also siphons off about 6% of the profits it creates as an unnecessary and ineffective middle-man.
The candidate with the $1.6 trillion idea
Ron Paul’s financial literacy has been recently taken to task. Yet it appears other Presidential candidates were completely in the dark when he said that the first thing we can do as a nation is to write off the interest we owe ourselves. To wit, the other candidates didn't even know what Mr. Paul was talking about. It’s obvious they are not familiar with the workings of government that Mr. Paul refers to.
Mr. Paul is pointing to the $1.6 trillion in government bonds (IOUs) the Federal Reserve Bank now holds. Dean Baker, co-director of the Center for Economic and Policy Research, says Mr. Paul "has produced a very creative plan that has two enormously helpful outcomes. The first one is that the destruction of the Fed's $1.6 trillion in bond holdings immediately gives us plenty of borrowing capacity under the current debt ceiling. The second benefit is that it will substantially reduce the government's interest burden over the coming decades."
Hey, would you cast your vote for a candidate that came up with a bona fide $1.6 trillion idea?
The US is continually going bankrupt and raising the national debt to meet its obligations. This crisis management of government, where shutdowns in federal government services loom every few months, could be averted for some time if the nation forgave the money it owes to itself. And imagine, all the other candidates missed a trillion-dollar idea.
Is Ron Paul crazy when he says he wants to eliminate Social Security and Medicare?
When Ron Paul says he wants to put an end to Social Security and Medicare (actually, turn these programs over to the States), Americans look perplexed. That is because they can't imagine these programs are on the verge of complete collapse. Only when Medicare reimbursement checks and pension checks bounce will the masses believe this.
You don't believe this is going to happen? As reported by Associated Press writer Stephen Ohlemacher, the cost of Social Security benefits will exceed payroll tax revenue by approximately $29 billion this year (2011). You can read about the whole Social Security fraud here. And you thought the Bernie Madoff Ponzi scheme was bad?
If you still don't believe this, read what the Congressional Research Service says: "By law, if Social Security revenues exceed expenditures, the "surplus" is credited to the Social Security trust funds in the form of U.S. government securities. The money itself, however, is used to pay for whatever other expenses the government may have at the time. There is no separate pool of money set aside for Social Security purposes."
An article in he Kansas City Star says the Social Security administration has no "real economic assets that can be drawn down in the future."
It’s only a matter of time before the Federal Government collapses. There is no way it can meet its trillion-dollar obligations to provide pension checks and medical care for retirees. Medicare and Social Security face a predicted $60 trillion shortfall in meeting their commission to pay for the health care and retirement of pensioners.
Net sum game
Recognize the US is a nation that questionably generates $14 trillion in annual gross domestic product balanced against an accumulated debt of $14 trillion, collects $2.4 trillion in taxes and spends ~$3.8 trillion annually, thus adding another $1.4 trillion to its debt load every year and faces continual shutdowns and legislated increases in its debt limit. This is against a future backdrop of multi-trillions of dollars of obligations to provide health care and pension checks to retirees with trust funds that only contain IOUs.
It’s sad to say, if Mr. Paul is not elected, he will be the Presidential candidate that Americans most regretted not electing.
Ron Paul is moving out of the Rodney Dangerfield (no respect) era of his candidacy. Expect the news media to apply even more unfair tactics in his pursuit of The White House. Comedian Jon Stewart first alerted Americans to the shunning of Ron Paul's candidacy by the news media. It is obvious the news is media attempting to think for Americans by writing a script ("unelectable," "isolationist") that continually discounts his candidacy.
As Mr. Paul once said, “There is a risk I could win.” (The Tonight Show with Jay Leno 2007.)