McDonald’s began selling hamburgers in 1955, when a burger cost 15 cents. In Garrison, Minnesota (the smallest city in America with a McDonald’s), a burger now costs 89 cents. That same burger sells for $1.69 in New York and $1.96 in Los Angeles today. However, if you calculate inflation since McDonalds started selling burgers, it should cost $1.24.
Most people are very afraid of the thought of inflation. Do you remember the Jimmy Carter era inflation? Money markets were paying 18 percent, home mortgages and auto interest rates were 12, 13, and 14 percent or higher. The actual inflation rate was 14 percent. Did people survive? Of course they did. And you can too, if you know the strategies to take advantage of inflation as it returns. Wouldn’t it be nice to be in a position to benefit from a bad financial occurrence?
That bad day is approaching. David Walker, former United States Comptroller General, says our budget debate is “like arguing about the bar tab on the Titanic.” His fancy title means he was the head accountant for the United States Government. First, the most aggressive plan proposed by Wisconsin Republican Paul Ryan reduces spending by $6.22 trillion over 10 years. It sounds like a lot doesn’t it? But divide $6.22 trillion by 10 years and it is $622 billion. Our current deficit is approximately $1.5 trillion. Even doing every part of Ryan’s plan still leaves us with almost a $1 trillion deficit every year.
But that’s not all! When will these budget cuts be proposed, and if passed, when would they take effect? First, no legislation of this sort will be presented before the 2012 Presidential election. That means that when Congress convenes in January 2013, they will be debating fiscal year 2014’s budget. Keep in mind, Medicare is predicted to go bankrupt in 2017, yet legislation to deal with this impending disaster would not be debated until fiscal year 2014. Even if passed as currently presented, (and really, how likely is that?) it would not even make a dent in the future liabilities of these entitlement promises. Careful reading of the proposed legislation reveals that Medicare isn’t even addressed until 2022 – 5 years after the program goes bankrupt!
President Obama wants to merely increase taxes by $1 trillion over the next decade. No Cuts! $1 trillion divided by 10 is $100 billion per year. That would still maintain trillion dollar annual deficits for the next decade. To put this into perspective, even if we taxed everyone who makes over $250,000 at 100%, we would not even raise half of the revenue necessary to balance the budget.
Inflation is on its way because spending is out of control, causing our government to print even more money to pay our bills. Several long-term trends are fueling this process:
- Demographics trump promises…There are currently only three workers for every recipient of social security benefits. That number will soon be reduced to two. In 1950, there were 16 workers for every recipient. The math no longer works!
- Benefits last too long…When Social Security was proposed in 1935, an American’s life expectancy was 62. When Medicare was passed in 1965, life expectancy was 70. Currently life expectancy is above 78. Shouldn’t these programs be brought back into actuarial balance with current life expectancy?
- Benefits are too high…Salaries account for only 51 percent of income in our country. That is the lowest percent since records started being kept back in 1929. American households received $2.3 trillion in government benefits in 2010. That now exceeds federal tax revenues! Our federal government pays about 90 percent of those benefits, which average $7,427 per citizen. That is up from $4,763 in 2000 and $3,686 in 1990. Did you get your check for $7,427?
- Taxes are too high…In California, our tax freedom day is already April 16th, meaning we work 106 days to pay all our federal, state, and local taxes. The earliest tax freedom day is in Mississippi where it still requires 85 days (March 26). Approximately 30% of your time working is just to pay taxes. Have you been getting your money’s worth? Does your government respect how hard you work to make a living?
Too often when people start thinking about higher taxes and inflation and how catastrophic it could be, they are actually discouraged to take action. But, for a moment ask yourself if there have been financially bad times in the history of our country and our world? (Yes) Were there any people who made money during those bad times? (Yes) Were the people who prospered the ones who planned for those challenges or the ones who decided to just let it happen to them?
Which one do you want to be, and when do you want to get started protecting your future?