Much has been discussed about inflation recently. That’s because the cost of the things that we buy have gone up.
The Chapwood Index reflects the true cost-of-living increase in America. It reports the unadjusted actual cost and price fluctuation of the top 500 items on which Americans spend their after-tax dollars in the 50 largest cities in the nation. https://chapwoodindex.com/
Inflation is a tax
Inflation is tax, a real tax, just as real and is as important as the individual income tax. While inflation clearly does reduce the purchasing power of your earnings and fixed-income asset values, it also redistributes purchasing power from businesses and households to the federal government.
By reducing the purchasing power of the Canadian dollar, inflation effectively reduces the real cost of servicing and retiring outstanding government debt (in the latest federal budget, which includes $90.1 billion in new program spending over the next four years, the government projects federal debt will reach $1.3 trillion by 2025).
Cause of Inflation
Inflation is always caused by the Bank of Canada printing more money. Its legalized counterfeiting. It’s a hidden tax that the government sneaks under the rug. It has nothing to do with supply change issues. Everything is linked to the money supply.
Inflation is caused in two ways.
One, through government deficits. Deficits are taxes we pay through devaluing your money. Governments love deficits because people don’t want to pay higher taxes out of their pockets. Well, deficits are the same as tax out of your pockets.
Every time you see a government deficit, a tax warning red light and siren should illuminate and sound off.
And two, inflation is created through Fractional Reserve Lending through deposit taking banks. Banks are allowed to loan out up to 10 times the deposits they have on hand. And during COVID there was no limit. As they make loans, the Bank of Canada is obligated to print more money to cover these loans. This means, every time you borrow money from a bank it contributes to inflation – up to a 10% devaluation in not only your money, but everyone’s money.
So only everyone (you, your children, their children) who borrows from a deposit-taking bank is instantly devaluing the value of their money and everyone else’s money in the country. When a bank loans out more than the deposits they have, the Bank of Canada must print more money. And when the bank prints more money the value of your money drops.
Every time you or someone you know borrows money, a tax warning red light and siren should illuminate and sound off.
So what? Our income keeps pace with inflation, right? Wrong! It does not. Wage growth never matches inflation. Further, wage increases also contribute to inflation.
Inflation is Highly Ignored in Financial Planning
Financial advisors and planners don’t talk about the problems of inflation. That’s because the financial industry doesn’t train them to. The industry is focused on making money from investments – investments that struggle to stay ahead of inflation.
Let me say it again if you missed it. Inflation is a tax. Over time you will receive pay increases to help offset inflation. However, these increases never match inflation. Further, these marginal tax brackets increase every year to match inflation which means you pay tax on inflation.
How much has the government deceptively taxed its people? Much more than you think. A 1935 dollar is now worth $0.05.
How did this happen? We allowed the government to do it, although, we’ve been deceived by those we voted into power.
According to the National Debt Clock the number one concern of older Canadians is the impact of debt to future generations.
Government debt, and the interest resulting from it, contributes to inflation.
What about you? Do you share this worry? We know how much you care about the financial security of your children and their children! If you want their financial security to be better than yours, we can help.
So, what can you do about inflation?
1. Decide, enough is enough, that you’ve unknowingly have been part of the problem and want to be part of the solution! That you want something better for your children and want to leave the world a better place as your legacy.
2. Stop borrowing from deposit-taking banks. This will reduce Fractional Reserve Lending that is a contributor to inflation.
3. Let your voice be heard. Book a conversation with your government representatives. Tell them enough is enough. Tell them no more deficits. Vote in a government that promises to not use deficits. If you live on deficits, you eventually become bankrupt. https://www.ourcommons.ca/members/en/search
4. You, and your family, connect with me to create Infinite Banking policies. They do not contribute to inflation, no invasive bank borrowing rules, and is the only way you can recapture the hundreds of thousands of dollars in interest paid when financing something you want.
People who ignore inflation and have no strategy to overcome it continue to fall further behind those who do. I’m implementing my own advice. You should also!