Living with the Fed

The Federal Reserve was created in 1913 to assume the duty of Congress to “coin money”.  In the 100 years of the Fed’s existence, from 1913 to 2014, inflation has totaled 334%.  The CPI measures inflation aka dollar devaluation or debasement.  My interest in the effects of money printing stems from several changes our federal government has made in measuring inflation and the 450% increase in the money supply. I’ve lived through the decades of inflation since 1943.  I also heard about inflation from my aunts and uncles who lived through the Great Depression.  I am looking for patterns of government spending and money printing in response to wars and the creation of unsustainable government programs, because we are in economically dangerous times.

The average increase in the CPI for the periods I selected since 1913 are as follows:

1913-1929 4.1%, 1930-1939 1.8%, 1940-1949 5.6%, 1950-1959 2.1%, 1960-1969 2.4%, 1970-1979 7.1%, 1980-1989 5.5%, 1990-1999 3%,  2000-2010 2.6%, 2010-2014 2.0%

Change in the calculation:  The November 2006 Consumer Price Index Summary, which is published by the BLS, stated that "During the first 11 months of 2006, the CPI-U rose at a 2.2% seasonally adjusted annual rate (SAAR)." Williams' estimate of CPI for the same period was 5.3%, while Ranson's reported an 8.2% estimate. http://www.investopedia.com/articles/07/consumerpriceindex.asp

So, the average CPI since 2000 is suspect and is probably 4 times the stated rate.

The 1913 – 1929 period average of 4.1% reflected the costs of World War I and the money printing that fueled the stock market bubble that crashed in 1929. Jobs were plentiful until the crash.

The 1930-1939 period average of 1.8% reflected some years of deflation, when prices went down.  Jobs were not available and over half the population was poor.

The 1940-1949 period average of 5.6% reflected the cost of World War II and money printing that fueled the housing boom as veterans returned.  Jobs were more than available.  Housewives went to work.

The 1950-1959 period average of 2.1% reflected a good economy.  Housewives returned home. Jobs were plentiful.

The 1960-1969 period average of 2.4% reflected a good economy, but the Vietnam started in 1964 and the War on Poverty started in 1968 and everyone knew inflation was coming.

The 1970-1979 period average of 7.1% reflected the costs of the Vietnam War and the War on Poverty. We had high inflation, high interest rates and noticeable job loss.  Housewives went to work again and stayed.  High government spending resulted in the necessity for the 2 earner family.  The PR campaign for this was “women’s rights”.

The 1980-1989 period average of 5.5% paid off the debt incurred in the 1960s and 1970s.  High economic growth paid off government debt with higher revenue. Dual income required.

The 1990-1999 period average of 3% reflected the productivity gains resulting from the development of the personal computer and the surge in U.S. electronics manufacturing. NAFTA in 1993 prompted offshoring U.S. manufacturing on steroids.  They called it the Information Age and the information wasn’t good.  Manufacturing jobs were eliminated and the decline of the middle class accelerated.

The 2000-2009 period average of 2.6% cannot be trusted.  It was more like 6%. The Middle East wars propped up employment, but the national debt went form $5 trillion to $10 trillion.  

The 2010-2014 period average of 2.0% cannot be trusted.  It is more like 8%.  The extra $1 trillion in government spending went from wars to UN Agenda 21 implementation. The national debt went to $17 trillion and climbing at the rate of over $1 trillion a year. Our real unemployment is 37%, the percentage of the working-age population without jobs.  We have 144 million working and 92 million not working. Excessive illegal immigration heading back up to 20 million and excessive legal immigration of 40 million since 1989 was enough to put 92 million Americans out of work.

In 1965, our new car was $2000.  By 1968, it was $3000.  In 1973 is was $4000.  In 1974 it doubled to $8000.  Now, in 2014, it’s 24,000

In 1965, our first house was $16,000.  In 1975 it sold for 36,000.  In 1975 our next house was $55,000.  We sold it for $85,000.  In 1983 our current house was $133,000. It is currently worth $500,000.

In 1965, a good household income was $10,000 a year.  Now, in 2014, a good household income is $100,000 a year.

In 1965, college tuition was $2000 a year.  Now, in 2014 it’s $10,000 a year.

How we lived with inflation

Having an average of 4% per year inflation gives young families no incentive to save and every incentive to spend.  Inflation keeps prices rising, so the sooner you can buy what you need, the less it will cost.  If you wait, it will certainly cost more.  It’s best to buy when you can get a deal.  The best time to redo the kitchen is when builders are struggling to stay in business.  Consumer borrowing surges when you can pay it off over time.  This is routine if you need a car or a house.  Keeping your household income ahead of real inflation is the key to being able to afford paying the inflation tax.

Future Inflation

The Federal Reserve has increased the money supply by 450% since 2008.  I expect this will be paid off with 10% inflation for the next 45 years.  A good household income after that would be $1 million a year.  I would be happy to be wrong.

Norb Leahy, Dunwoody GA Tea Party Leader