Inflation : Bad for Folks; Good for US Government

I’m not writing anything new. Most everyone knows it. I’m just, so to speak, putting it in one box. How-some-ever, I am sure I will leave at least 1 thing out, maybe 2.

First bad for folks:

  1. Increase in cost of living, for example, fuel, food, utilities and autos. I am sure you can add a few.
  2. Increased interst rates. This adds to the cost of just almost everything.
  3. Loss of value of savings. If you have a 1000 dollar savings account, it gains value by the bank interest while losing value by the rate of inflation. Bank int=3%. Inflation rate=6%. Annual Loss in value 3%. On the other hand, if you just hide the money in your mattress, the value will decrease at 6%. If you stuffed 1000 in that mattress, you’ll have to stuff an additional $60 a year into that mattress just to maintain the value.
  4. It eats into earnings. Assuming a 6% inflation, you will need greater than a 6% increase in earnings to maintain value of earnings. Bear in mind, with greater income, your income tax will also increase. Hope the company you work for provides healthy raises.
  5. Finally, saddest of all. Those who have set retirement payments will have the buying power of those payments dwindle. In just a short time, he or she will have to struggle just to pay the landlord. Indeed, some older folks have gotten the boot, primarily because of inflation. Moreover, don’t get the idea that Social Security COLA increases keep up with true inflation. COLAs don’t take many things into consideration. I virtually live off Social Security. I know.

Secondly, consider the benefits to government

  1. Increase in revenues due to greater incomes and number of people in higher brackets.
  2. Debts incurred by the government are repaid by lower value dollar values. Considering $1000 of 10 year bonds will be repayed with, per se, $800 dollars value. Generally speaking the interest on federal bonds is far less than the inflation rates. Hence, buying federal bonds might be more secure than that mattress, but it’s not much better on the return, either.
  3. Ironically, it “increases” the value of the gold reserves. However, this is really an error in perception. The value of the gold remains relatively constant. The paper, on the other hand, is worth less.

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