Once one achieves the age of 60, it is hard not to recollect the good old days by remembering one’s childhood then comparing it to the current era in society. Nothing strikes me better recently than an excellent article by Michael Green from November 23rd titled “Part 1: My Life Is a Lie – How a Broken Benchmark Quietly Broke America”.
When one digs into Mr. Green’s article, one key sentence stood out above all others:
We have created a system where the only way to survive is to be destitute enough to qualify for aid, or rich enough to ignore the cost.
Please click on the link above to read the rest because sometimes, okay, many times, others can express a more eloquent opinion than your not so humble host and his everything is a nail and I enjoy being the hammer approach to criticizing the systemic problems with America’s current economic structure.
But what was my takeaway from the article above?
The problem with the “science” of economics is that they want you to recognize annualized CPI-U. Ignoring embedded plus cumulative inflation makes it seem that things are getting better. However if you’re an old salt like this author, you understand the concept of fort building in a creek.
To Be A Child Again Playing in a Muddy Creek
There are old realities, new realities, and childhood memories. Weirdly enough every now and then, all three intersect. The old reality was a simpler time where inflation was all the rage, Nixon and Carter were the villains, the Fed was a secret cabal playing behind an organ until Toto or some other mutt exposed them and Paul Volcker was credited with saving the day.
I too must admit, I experimented with marijuana as a teenager and believed all of these things also.
However, this is where childhood might actually provided some insight as to how the decades, now almost 50 years worth, of cumulative inflation has created a giant mud fort in a creek, that is now on the verge of collapsing.
I remember when I was a youth damming up a creek behind our house, much to the vociferous objections of my late mother, with engineering marvels made of logs, mud, and any scrap plywood we could find in the woods. The purpose of these mud forts was not just so my friends and I could play soldier, war, or cowboys and Indians (yeah, no DEI in the 1970s), but so we could pan the creek bed looking for Civil War relics.
Once, upon many times, after creating a masterpiece that held back up to four feet of water, we were able to dig deep enough and find an old cannonball, musket balls, and other objects like a belt buckle from the battle which had occurred there. Unfortunately, a major thunderstorm moved in before we could act to shore up the dam, and the glorious muddy creation was washed away.
Based on the inflation and economic data of the past twenty years, I fear another massive storm is upon us and the Fed is completely out of mud.
Cumulative Inflation, the Curse of the Consumer
The largest issue facing the reality of the American public is not that inflation has been consistently higher, but the idea that cumulative inflation does have a cure. But wait, one might say, isn’t a cure for cumulative inflation great for the consumer the government, and the United States economy?
To quote Lee Corso, welp….
Most souls view cumulative inflation as this chart, indexed to a false valuation of the US dollar and for purposes of this discussion, starting in 2007 when the latest economic reset began.
While the unofficial cumulative rate is around 56% since that era, is that the real rate we’ve endured since that time?
Probably not. The reality is that via hedonic adjustments and the insipid belief that home valuations should be based on a flawed systemic measurement of actual inflation along with other monthly consumable goods and services (for example, healthcare remaining below 18%) is only highlighted by the government using an educated guess at almost 40% of all price changes.
What do I mean by guess? An actual educated guess calculated by bureaucrats at the political whims of the Executive branch to determine the reality of which COLA’s (Cost of living adjustments) and other key government benefits are based on.
It is a rare moment that one will hear this from these pages due to the deliberate economic distortions of reality presented by the current administration, but it does appear that Trump’s “people” were and are more blatant about the big CPI lie versus the prior regime.
Persistent v. Cumulative v. Media Inflation
Weirdly enough, the financial media caught wind of this and began reporting on it during the Biden, not Trump administration. Reporting on what one might ask? Cumulative inflation as this article from Forbes in March of 2024 highlights:
The Federal Reserve’s Folly: An Inflation Rate Of 20%
This key excerpt should be a red flag for anyone with the sanity to understand what has happened over the last two decades:
The dramatic inflation rise caused by the money actions (and inactions) did great damage the U.S. dollar’s purchasing power. The cumulative 20% inflation rate means it now takes, on average, $120 to make a comparable January 2020 purchase. (Mathematically, that means $1.00 is now worth only $0.83 in January 2020’s terms.)
Theoretically, this is true. However, $1.00 in January 2020 terms is a false pretense. The persistent inflation necessary to service the US debt has resulted in a prolonged deterioration in the value of the US dollar in 2007 terms far worse than reported by the Forbes reporter.
Let us take this step by step. First, using 2020 as a baseline assumes most of America did not exist in oh, say , 2007. So what does the US dollar valuation in 2007 US dollars today?
For purposes of argument, a roughly 57% increase in prices since the pre-collapse days of the GFC.
But for reality purposes, let’s go back to 1970, when the United States removed itself from a hard money standard, aka, gold.
For the sake of primitive piss poor “maf is hard” discussion, that’s 55 years of data since the gold standard was deposed. The approximate increase in prices is about 13.36% annually since that era if we’re using an average devaluation basis for this.
Is that real? Perhaps.
But analyzing why we are here is much more important and the understanding that the 13.36% annualized average inflation is more realistic when looking a the declining purchasing power of the citizenry since Nixon’s divorce from the gold standard.
While cumulative inflation is brutal, persistent inflation which is necessary for the government, be it Local, State, or Federal has been embedded into the system to justify an expansion of GDP only magnified by government largess versus actual economic growth.
Inflation, I am sad to say, is the best method for retiring debt, unfortunately it is murder for the retired or those on fixed incomes, even when government is the one sponsored the redistribution of monies for the every expanding lower and lower middle classes.
2% Magic or Evil Voodoo?
This is why the magic number being uttered by Federal Reserve officials of 2% annualized inflation seems to be magic, as if the monetary gods provided a booth with a ghostly voice advising them that should be the target. In reality, it’s evil voodoo however as by artificially reporting CPI as close to 2%, the annual COLA (Cost of Living Adjustment) for government dependent souls is manageable; as long as the numbers of those needing government assistance does not skyrocket outside of the norms or the US government debt does not explode to unreasonable levels.
Guess what sparky?
The much celebrated yet rarely considered lower middle class, which is essentially the 30th and 40th percentile of income earners below the median income have been experiencing flat income growth since 2007.
In 2007, the 40th percentile of income was only averaging $56,830, while closing out the chart above in 2024 it was $65,100. A paltry average annual increase of $486 per year or 13% over that time span. meanwhile cumulative inflation is up 56.6% in total since 2007 even using government statistics. This rate of increases hardly keeps pace with cumulative inflation and only pushes more median and barely upper middle income households down the income ladder.
The problem for the average American is that while banks, the upper 20% (the asset rich), and selected industries recovered nicely from the Great Financial Crisis, most Americans did not and still have not. A similar, if not more disturbing pattern is visible for the lower classes also where that pace on income increase at those lower levels means the rate of cumulative inflation has been outpacing their earnings for a decade plus, creating larger disparity and a greater need for direct government income transfers.
The Federal Reserve Surrenders to Higher Consumer Inflation
This week the FOMC will meet, they will pontificate, post a chart of economic projections on their Etch-a-Sketch, and cut rates by 25 basis points. More on that in Wednesday morning’s article.
The reality is that no matter who becomes the next Fed Chair, even if Trump lost his mind further and reappointed Jay Powell for six more years, the new Fed will be married to an easy money policy where more effort will be focused on containing long term rates to suppress what government must pay for its debt. This is why some form of Quantitative Easing is more rather than less likely in 2026, no matter what they mask it as, and no matter what they call it.
In the mean time, a storm of further inflationary pressure will collide with a wave of deflation being created by the collapse of demand due to the trade wars and inability of the American consumer in the lower rungs of society having access to credit. This eventually will relieve that inflationary storm in the short term but as the economy flat lines further, expect extraordinary measures by the new central bank and government during an election year to introduce radical inflationary policies to cure the stagnation.
Which sadly, eventually, washes away that beautiful mud fort in a stormy wave of rising prices all over again.
