Revealing the Real Rate of Inflation

The grim reality is that real inflation is 7+% per year.

This week, I’ve noted that Consumer Prices Have Soared 160% Since 2001while under-the-radar declines in value, quantity and quality are forms of Inflation Hidden in Plain Sight.

What would happen if the real rate of inflation was revealed? The entire status quo would immediately implode. Consider the immediate consequences to Social Security, interest rates and the cost of refinancing government debt.

Unbiased private-sector efforts to calculate the real rate of inflation have yielded a rate of around 7% to 13% per year, depending on the locale–many multiples of the official rate of around 1% per year.

So what happens if the status quo accepted the reality of 7+% inflation? Here are a few of the consequences:

1. Social Security beneficiaries would demand annual increases of 7+% instead of zero or near-zero annual increases. The Social Security system, which is already distributing more benefit payments that it is receiving in payroll tax revenues, would immediately go deep in the red.

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(Please don’t claim the SSA Trust Fund will be solvent for decades. I’ve dismissed the fraud of the illusory Trust Fund many times. The reality is the federal government has to borrow every dollar of deficit spending by Social Security by selling more Treasury bonds, just as it borrows every other dollar of deficit spending.)

The Fraud at the Heart of Social Security (January 17, 2011)

The Problem with Social Security and Medicare (July 17, 2013)

The Social Security system would be revealed as unsustainable if real inflation (7+% annually) were made public.

2. Global investors might start demanding yields on Treasury bonds that are above the real rate of inflation. If inflation is running at 7%, then bond buyers would need to earn 8% per year just to earn a real return of 1%.

Central states are only able to sustain their enormous deficit spending because interest rates and bond yields are near-zero or even below zero. If the federal government suddenly had to pay 8% to roll over maturing government bonds, the cost of servicing the existing debt–never mind the cost of borrowing an additional $400 billion or more every year–would skyrocket, squeezing out all other government spending and triggering massive deficits just to pay the ballooning interest on existing debt.

Bond yields of 8+% would collapse the status quo of massive government deficit spending.

3. Private-sector interest rates would also rise, crushing private borrowing.How many autos, trucks, and homes would sell if buyers had to pay 8% interest on new loans? A lot less than are being sold at 1% interest auto loans or 3.5% mortgages.

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