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Inflation warning and what it means to you

Most should not be surprised that the rate of inflation is up with the government’s Covid relief.

Most of us, including bankers and politicians, are not aware of what inflation is, and that it really is public enemy #1.

Inflation happens every time the government prints money out of thin air (fiat money) – which happens every time they run a deficit. 

What is a deficit?

A deficit means the government is not collecting enough in taxes to meet their expenses and prints money to make up for the shortage.

“Inflation is an increase in the quantity of money without a corresponding increase in the demand for money, i.e., for cash holdings.” Ludwig von Mises

In the last 72 years, they have run a deficit 54 times, including each of the last 12. And, since 1970, the federal government has run deficits during every fiscal year for all but four years.

Deficits are not going away anytime soon.

No definite date has been given for the next balanced budget. In 2018 a deficit was forecasted until 2040.

Effects of inflation on personal finances

Canadians’ ability to save for retirement aside, the purchasing power of the Canadian dollar and retirement savings becomes highly uncertain when inflation rates fluctuate.

$100,000 today with an inflation rate of 2% would be equal to $66,761 in 20 years.

Whereas $100,000 today with an inflation rate of 5% would be equal to $35,849 in 20 years.

Canadian’s today are poorer than they were 50 years ago–a reality for which inflation largely contributes.

When the government donates money to Ukraine and other countries its donating money it does not have – until it prints more money.

Politicians don’t care about inflation, because they and voters don’t understand inflation.  Inflation is the consequence of the misguided decisions people who stood to profit made manipulating our banking system in 1935.

As such, they focus on what people want to make them feel good to get votes. 

Those who gave their lives fighting for freedoms of Canada did not fight for this.  They fought for freedom (capitalism), not socialism.

Effects of inflation on Canadian economy

Canadian’s will see price inflation in assets such as financial securities, real estate, and even commodities.

While the price of houses, groceries, and gas increases, their worth does not necessarily tell the same story.

Because salary and wage increases are a lagging factor, Canadian’s will continue to fall further behind in their financial and retirement goals. At the time of this writing, Canada’s inflation rate is sitting at 5.7%, the highest it’s been in over 30 years.

“By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.” John Maynard Keynes

A former U.S. President said inflation is going to ravage the U.S., and what happens south of our border usually impacts us.

Lesson from history

History shows us the impact of inflation. As the story goes Dictator Julius Caesar ordered his ministers of the treasury to clip all the edges of the gold coins in his possession and with the clippings make more gold coins to pay for government and wars. People started to notice their coins weighed less so they started charging more for what they were selling. This was the start of inflation.

Caesar then started melting down gold coins and stole some of the gold and replaced the gold with other metals. People also noticed this and further increased the price of what they were selling. Things got so out of hand the Rome economy collapsed. Our situation in Canada is potentially on the same path.

“Continued inflation inevitably leads to catastrophe.” Ludwig von Mises

If the Canadian economy were to collapse, you would likely lose access to credit. Banks would close. Demand would outstrip supply of food, gas, and other necessities. If the collapse affected local governments and utilities, then water and electricity might no longer be available.

Today, we see an increase in the quantity of money through printing of money, or simply creating electronic money, at the Bank of Canada. Without getting into details, this is done at governments request and is possible because Canada’s central bank is a fractional reserve banking institution.

“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.” Alan Greenspan
Fractional Reserve Banking

If deficits weren’t bad enough, fractional reserve banking magnifies inflation, even more, every time you deposit money with the bank, it allows banks to loan out up to 9 times of their deposits.  This is more fiat money.

We look to governments for solutions but they don’t have one.  Governments keeps people happy by printing more fiat money and bailouts.  Both are Band-Aids. And both mean further devaluing of the money you and I earn and have. Inflation has been called a hidden tax.

“Inflation is taxation without legislation.” Milton Friedman

Inflation is a bank issue, powers the government gave the bank in 1935.  Its no different that some of the major engineering failures we’ve seen in the world. People don’t believe what is true. They believe what they hear most often. Its a classic case of smoke and mirrors.

The Good News!

The good news is there is a solution to this serious problem – that the wealthy, accountants, doctors, dentists, business owners, professionals and economists are endorsing.

To learn about what they are doing to address this problem, book a conversation with me here and request our free eBook.

What happened in Rome is happening here, right now. Will you be prepared when the next financial tsunami hits?  You can!

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