If you retired in the last 10 years with savings of say $300,000 and maybe a paid off mortgage, then you're in the clover! Right?
Wrong.
Had your savings grown with actual inflation that 300K should be almost 1 million.
However as you start using the money for your retirement the value of a dollar continues to shrink and effectively you really only have about $200 000 maybe less.
Ah! You say but I can sell my house for $900 000 and I only paid $46,000 back in 1982.
Ok sounds good, but have a closer look. That should tell you right there what your savings are! (Remember you paid interest on that mortgage for 25 years too!)
It's a concept that most economists don't fully grasp.
The value of your house is basically meaningless, because if you sell then you need to buy or rent.
You are trading value for value so the dollar tag is irrelevant.
Then your savings,....you started back in 1986 socking away $100 a month for retirement. Every year you increased it a little.
Now reflect that $100 in 1986 is about $400 in today's money.
Yes the savings grew a little each year, and your money manager took a little for his fee every year.
Assuming and average inflation of 3% your money only grew by 1.5%.
So in 10 years the value shrunk by an aggregate of 15%.
It's a magical shell game, where did the money go?
It's easy to say inflation gobbled it up.
Now inflation to the average person is just that. But to a Bank, Corporation or Government it is pure profit.
I'll demonstrate this in just one simple way but there are many other ways.
Banks, Corporations and Governments borrow money.
Banks inturn lend it to you for a fee called interest always higher than inflation. A lot of that money is from your savings account ( so they've borrowed it from you to lend it back to you)
They also lend to Corporations.
The Corporations use it to buy raw materials, usually through a Government concession like mining or forestry and always far below true market value.
You the tax payer make up for the shortfall and subsequent clean up through new higher taxes (like carbon tax).
Governments use another trick.
They print money against nothing other than your ability to pay more taxes.
This creates inflation, so if a government borrows 1 billion by the time they pay it back that value has shrunk (like your retirement savings) to an adjusted value of only 500 million.
Which they then pay off with more printed money.
It's an unsustainable pyramid scheme.
Hope that clears it up for you....
No???
That's how they like it....
