Real Inflation Numbers - Doom to the 99%

Latest from Eric Sprott

. . . the increase in food and energy has grossly outpaced the official CPI inflation rate, which conveniently dropped or shifted many of the food and energy components back in the 1990’s. If the Census Bureau used a more appropriate measure of inflation to compare the median household income in 1999 to today, it would result in an even lower annual income number, implying an even worse decline in real wealth over that time period.

:1990 to 2011 Rea:

The figure shows the decrease in average law salaries since 2009, with the most striking decline evident in the median salary at law firms, which has fallen 35% over the past three years as law firms shift to more lower paying jobs.

:2009 - 2011 STAR:

Think of the difference in disposable income between a salary of $130,000 in 2009 vs. $85,000 in 2011. That’s the difference that isn’t being expressed in today’s labour statistics, but has a profound impact on consumer spending.

Then there are the retirees, and while they may not yet identify themselves with the Occupy movement, they do undeniably make up a key component of the 99%. This is a group that has not only faced continual inflation erosion, particularly due to massive increases in healthcare costs (see Figure 5), but also now faces the burden of generating retirement income in a perpetual zero percent interest rate environment. If there is any group that has felt the decline in living standards over the past decade it is this one. Consider, for example, that in 2012 a savings of $1 million dollars invested in a generic 10-year Treasury bond currently pays a mere $17,000 in interest before taxes. And that’s $17,000 in 2012 dollars. In comparison, $1 million invested in 10-Year Treasuries in 1999 would have generated $47,200 before tax in 1999 dollars, when a gallon of gas was $1.22 and the cost of almost every household item was lower by half. There is no statistic that measures the impact of this decline on the disposable income for retirees, but it doesn’t take much imagination to realize that it has completely changed the prospects for an entire generation of savers.

The sad fact is that the economic reality for the average family is far worse today than it was ten years ago… even fifteen years ago, and the trend of declining wealth is firmly in place. The youth need higher paying jobs and the retirees need yield, and for all the trillions of dollars that the US government and other western governments have spent and printed, none of it has addressed these key areas of weakness in a way that can reverse the long-term trend. As we approach year-end and the finality of the US election, there will likely be numerous indicators implying a US recovery. Unless they directly benefit the 99%, we would advise readers to take them with a large, bipartisan grain of salt. Weakness begets weakness, until something dramatic reverses the trend’s course. The 99% are firmly stuck in a declining trend, and we do not see it reversing any time soon.

[link to www.tfmetalsreport.com]