Any time you want to see what happens when inflation runs wild, just look at Argentina. They lied to their citizens just like our own government is lying to us.
The inflation rate in Argentina hit 20,000% in March of 1990. To put that in perspective, a gallon of gas that cost the equivalent of $4 this afternoon, might be $150 in the morning. From 1975 to 1991, inflation averaged 300% annually in Argentina -(Wikipedia).
Let’s look at more recent Argentine history and I’ll tie it in to what is happening in the U.S. The current “official” rate of inflation in Argentina is 10.58% per year. However, anyone who bought food or drove a car in Argentina could see that inflation was far higher than the government reported. In Argentina, it is illegal for anyone to dispute the official inflation rate -or it was until a recent court decision that ruled the law against reporting other means of pegging inflation illegal. In other words, the government could no longer threaten a fine of $120,000 for anyone who calculated and reported their own rate of inflation. The opposition party calculated that inflation was actually 24.43% which everyone (except the government) agreed was a much more accurate figure. Read more about the Argentina inflation suit here.
The bottom line in the Argentina inflation rate dispute was that the government wanted to avoid criticism of it’s economic policies by burying the true inflation rate. In short, it was all about retaining power at any cost -including flat out lying to the people. Which brings us to current inflation policy in the United States. In Argentina, what I am about to tell you would have gotten me fined $120,000.
The official inflation rate in the United States according to the Bureau of Labor Statistics is 1.38%. Funny thing, the official way of calculating inflation was changed in 1980 and it was changed once again in 1990. It was decided that some items, like energy and food, were “too volatile” to measure -so those factors were no longer used in calculating inflation. Basically, the gas you buy and the food you shop for is not part of the inflation equation.
Now, if you use the same methodology that was used in 1980 you reach a surprising conclusion: inflation is actually close to 10%. There is more to it than that, if you want to read more, but the change basically moved us away from defining inflation as “Being a measure of the cost of living needed to maintain a constant standard of living” to one of a hocus-pocus “Inflation is whatever we say it is.”
The common sense test: do you think inflation in the United States is 1.38% as reported by our government, or do you think it is more like 10%?
The important question: if you think inflation is more like 10%, why would our government lie to us? This isn’t Argentina, is it? Well, it is to the extent those in power want to stay in power and will fudge any statistic or any fact that does not show them in a good light. I bet a few examples from recent news reports have already occurred to you. Or just think of the Social Security “Trust Fund” that hasn’t existed in decades. Our government still uses the Trust Fund metaphor as though your SS withholding is still put in a “lock-box” and not added to the general fund where it is immediately spent each year.
I’ve given this a good bit of thought, and here is my take on why our government MUST claim that inflation is 1.38% when everyone knows that figure cannot possibly be true. If the government admitted that inflation was 10%, then wouldn’t they have to raise Social Security payments and all those government pensions that have mandatory cost of living adjustments by 10%? By the way, did you know that all government pension payments combined exceed Social Security payments? Try and imagine the amount of money going out if all pensions and SS went up 10% each year.
More importantly, if we admitted inflation was at 10%, and if we stopped buying back our own debt and if the Fed stopped keeping interest at near zero rates, wouldn’t the United States have to pay 6 or 7% interest on it’s enormous debt? And if the United States started paying interest rates that were more in line with reality, wouldn’t the United States then be bankrupt? The answer is a certain and indisputable “YES” because all you have to do is multiply $17 trillion of debt times 6% to see how fast the U.S. would have to default. Payment on interest for our national debt at current interest rates is one of our largest expenses. If we paid 6% interest on our debt, it would nearly equal all personal income tax receipts each year! Try to imagine every penny of taxes you pay going to service the national debt without a cent being left over for defense, education, welfare and Social Security payments.
We have been told for years that the interest rates have been kept artificially low by the Fed to stimulate the economy. I submit that inflation rates and interest rates have been manipulated because the United States cannot print enough money to pay for mandatory cost of living adjustments nor for the interest rates that would result if the Fed let interest rates go to normal levels. This is all like a pressure cooker that is allowed to boil year after year without a release valve. There cannot possibly be a happy ending.