- Employed US population 2007-2018 is down 1.29%
- Reported Consumer Prices up 47.84%, actual prices up 68.20% to 135.60%
- 2000-2018 total Federal Revenue increased by 63.54%
- 2000 to 2018 Federal debt increased by 265.30%
- Average Treasury yield prior to “Economic Stimulus” = 6.26%
- Average Treasury Yield since “”Economic Stimulus” = 2.59%
- Each Taxpayer’s portion of the national debt, $44,069 to $142,698
- If rates normalize debt service cost would consume nearly 40% of total Federal Revenue.
|Actual Median Income||Gold Price||Income in Gold 2000-2018|
|2000 $41,990||$280||150 ounces|
|2018 $59,039||$1,270||46 ounces|
|Increase or decrease||-69.03%|
Looking at the hard numbers it’s evident that true US inflation is running much higher than reported inflation.
This under reporting might be acceptable if median income was rising as quickly as true inflation but it’s not, Median Income from 2000 to 2018 was up a mere 0.0085% (adjusted) 40.60% (actual) while reported inflation was up 47.70% and true inflation over 100%.
During “Economic Stimulus” quality of life for US citizens has deteriorated faster than any other period since the Great Depression.
Why does the BLS.GOV under report inflation?
By under reporting inflation the US Government has been able to suppress interest rates, with it debt service cost. Currently the average interest rate paid on US Government Debt is 2.52% or 3.74% below the 20 year average of 6.26% prior to “Economic Stimulus”.
Average Treasury rates prior to “Economic Stimulus” = 6.26%
If inflation was being reported accurately and rates normalized it would cost the US. Government an additional 790 billion annually in debt service cost.
Should rate normalization occur, annual debt service cost would be greater than 1.3 trillion, consuming nearly 40% of all tax receipts.
Projected budget deficits would increase from 850 billion in 2018 to over 1.6 trillion.
Secondary Governmental Motivation
Currently desperate depositors looking for higher interest income to survive have been sucked into Treasuries with longer dated maturities. This has enabled the Federal Government to “fix” its debt for the longest period of time at the lowest rate on record.
As rates rise the liquidation price of these Treasuries will fall for example, if a 10 year is trading at 100.00 = liquidation value $100,000 with a yield of 3.00% should rates rise by 2.00% this Treasury will be discounted by $20,000 with its liquidation value falling from $100,000 at 3.00% to $80,000 at 5.00%. (10 year X 2.00% – $20,000)
My conclusion is the US and other countries will continue their inflation misrepresentations in an attempt to quietly monetize their debt. Their expectation is that incomes will eventually rise from inflation generating more tax revenue while at the same time the majority of Government debt is fixed greater than 6 years. End result increased tax revenue and discounted debt.
The upside is inflation misrepresentations, short-term rates rising, trade wars, and political tension with fuel major market moves in 2019 and beyond.
Peter Knight Advisor