Would I be correct to say....

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Steve1225 Posted: Tue, Jun 17 2008 7:45 PM

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 I had this on my blog, I just want to make sure it is correct. I am new to the Austrian school, former Keynesian.

 "Since we got off the gold standard, the Federal reserve can print all the money it wishes for the spendthrift politician. Because of endless spending, the government inflates the money supply and we get this thing called the inflation tax. Inflation lowers the value of your dollar making it worth less. In Jan/07 the inflation rate was 2% and it has risen to over 4% in November. To keep it simple, I will stick with 2% for the whole year of 07 and over the last decade it has been around 2% or more.Say in 1997 you put $1 in the bank and there was a steady inflation rate of 2% for a decade. by 2007 that $1 will have a purchasing power of 80 cents. To get a good perspective in 1997, you put $1,500 in the bank for 10 years and there is a steady 2% inflation rate. In 2007, the purchasing power of that $1,500 will be $1,200. It sounds bad but in the future it gets worse. We are $9 trillion in debt and by 2040 the whole federal budget will be crushed by medicare and social security alone. The government is going broke and has to pay out massive entitlement benefits down the road and the only way to pay for all of it is to print $$$$."

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liberty student replied on Tue, Jun 17 2008 9:33 PM

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You're off to a good start.  It's not perfect, but you seem to be on the right track.

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Paul replied on Wed, Jun 18 2008 5:35 AM

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Steve1225:

In Jan/07 the inflation rate was 2% and it has risen to over 4% in November.

Those figures are bogus.  Price inflation isn't actually measurable, but whatever it is, it's higher than that CPI-based figure...and proper inflation is money supply increase (which you can read off the graphs at http://www.mises.org/markets.asp,  once you decide which definition of "money supply" you like; appears to be running about 13% using the TMS graph)

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fsk replied on Wed, Jun 18 2008 8:34 AM

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Here is a better inflation calculation.  The CPI is a bunch of lies and propaganda.  A better measure of inflation is M2, M3, or the price of gold.  The Federal Reserve no longer publishes M3, but the price of gold is a reasonable subsitute.

If you use the price of gold as your index of inflation, rather than the CPI, then median annual income has been decreasing at a rate of 8% per year since 2001!

If you keep money in a bank account, the credited interest is MUCH LESS than the true inflation rate.  Over time, money in the bank loses its purchasing power.  Your savings are stolen via inflation.