The HUGE Inflation Double Whammy NO ONE Wants to Talk About
Seniors just got the good news and bad news of the Social Security cost of living increase. The good news is - they are getting a historic raise of 8.7% in their monthly checks. The bad news is that number is tied to inflation by law, but the inflation is calculated by the government itself. What economist John Williams, at ShadowStats.com has found is that if inflation was still calculated the way the government did in 1980, they’d have to give seniors a 17% raise today! So that’s the bad news. The new Social Security increase is not going to cover the actual effects you’re seeing at the gas pump and at the grocery store.
As inflation goes up, the Fed raises interest rates to put the brakes on the economy, but there’s a pretty big catch.
Other than the added expense of Social Security payments, do you know what else gets more expensive when inflation and interest rates go up? Debt servicing. Specifically, government debt servicing. The government effectively sets its own interest it has to pay on the national debt, and when the Fed raises rates, it costs taxpayers through higher debt service.
We now have $31 trillion in debt, increasing at a rate of $1.5 trillion every year. And the new debt that gets added is at higher rates than the old debt that gets retired. At around 4.5% our debt service payments are going to eventually be $1.4 trillion – just in interest alone. That is 29% - close to a third - of federal tax revenue.
That revenue is expected to be $4.174 trillion in 2022. Mandatory spending – meaning social security, welfare, food stamps, Medicaid and medicare, unemployment – are $4.018 trillion. Social Security is the biggest chunk of that at $1.196 trillion. There is not a whole lot of wiggle room to increase that. Already, without deficit spending, huge important parts of the government wouldn’t be funded, like the military, veteran’s affairs, education. The total expenditures come to just over $6 trillion. And we bring in $4 trillion in tax receipts. So the balance of that just continually gets added to the national debt, which adds to our interest payments.
What is the government going to do to continue to service this enormous debt and still uphold its obligations to seniors and other budget items?
Of course there are 3 options and you tell me which you think is more likely.
1. They can cut costs, reduce expenditures and become more fiscally responsible. That never happens in Washington because on the other end of every check they write is a special interest or a voting bloc that will scream bloody murder if the gravy train is threatened. Ronald Regan once famously said, “The government NEVER shrinks.”
2. They can raise more revenue through higher taxes. Raising taxes is not out of the question since we just got through a big election, but it would most likely be political suicide with inflation this high at the same time.
3. They can print what they need to cover the costs. This is the easiest because it is the most invisible way to pay for their obligations. Taxpayers won’t scream, seniors won’t scream, special interests won’t scream. Sure increasing the money supply will increase inflation even more but maybe they can blame Putin or something. Politically, it’s the easiest way to pay the bills, and that’s bad news for the dollars already in your pocket. How much more value can they lose?
I know which of these three options I’m betting on – and make no mistake – they HAVE TO pick one. So if you thought inflation was going to calm down any time soon, I’d love to hear you make a case for spending cuts or tax increases in Washington – enough to bridge the divide. Otherwise we’re in for more inflation and volatility ahead.
The Good News…
But the good news is they can’t print gold and silver, which have historically acted as a solid store of wealth in inflationary times. You don’t have to watch your savings deteriorate as they fire up the printing presses again. Many experts recommend putting an allocation of your portfolio into precious metals, and I know I sleep better at night with gold and silver in my home safe or my retirement account.
If you’d like this peace of mind, too, give us a call and our account reps would be happy to help you.