Brad-o-nomics
What the heck is inflation?
There Is No Gold in Fort Knoxx
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or The Match Stick Metaphor
Here is one explanation as to how each day inflation quietly continues to rob a part of each of your dollar's buying power and how this tricky dick does it invisibly without putting it's hand in your coat pocket or even coming to your house. It is very important to me that you please try to understand the concepts behind my poorly laid out metaphor as it may well be the single most important piece of information contained in this book. If you find my fictional example trivial or even a poorly written explanation try to look past that as I am a business man with a financial message. I barely passed english in school but excelled in math and physics. I am not a writer. The underlying concept in this simple metaphor is the best way I can come up with to introduce you face to face to your worst enemy. You cannot win against inflation unless you first learn to understand recognize and identify it's invisible method of robbing your retirement nest egg.
I am also not an economics professor and therefore couldn't attempt to pinpoint the specific forces that are the cause inflation in our country today. I can however give you a very simple fictional metaphor that if it doesn't put me in jail, will display the concept behind how these forces have always and will always go on robbing each of your retirement dollar's buying power year in and year out. Please try to understand some of the concepts that the following metaphor attempts to convey and feel free to edit it or help me convey the concept with any suggestions for improvement you may have. Try to read this not as a explanation of inflation but as
step one
learning how to recognize or identify inflation
see how it is able to rob us all and do it invisibly.
To get the concept I have to ask you to pretend with me for just
a moment. Have you ever tried to played nickel-dime-quarter poker at home
and once you were all set around the dining room table you had to try to
figure out how to make the proper change for everyone and for this example
anyway you don't have swivel rack filled with red white and blue colored
plastic poker chips? This problem was always best solved by coming up with
something around the house that you had a lot of; paper clips, Tidily Winks,
army beans, or wooden match sticks? Let's pretend we are going to play
poker now for this examples sake. Please pretend for a moment that because
you don't have an adequate supply of change (nickels) on hand, everyone
agrees that it is OK will all players to substitute wooden match sticks
to represent nickels. For my example there will be a total of 5 players
and all 5 players have exactly $1.00 paper dollar each to start with and
a 6th guest who is not going to play poker tonight agrees to hold the bank
and make the needed match stick change for all. Once everyone has the needed
change and the first hand of this hypothetical poker game is dealt each
match stick has a predetermined value for example in this game of exactly
five cents, if there are exactly one hundred match sticks total in circulation
among players and exactly $5.00 paper money in cash from the players buy-in
money already tucked away in the bank to back each of the match sticks
up (like Harrah's chips in Harrah's casino). This way later when it comes
time to quit everyone can cash in whatever wooden match sticks they hold
fairly and equally. The $5.00 is kept in the bank, a tin can on the table.
For this example, we'll call the bank "Fort Knoxx". During the game
all players seem to be winning heavily. One player named Preston (Preston
Clinton that is; considered by all to be honest, trustworthy, and a very
fine politician) is secretly holding another entire new box of 100 identical
wooden match sticks. As the game gets started and the evening progresses
Preston Clinton trades 40 of these secret or bogus match sticks to a player
(named Fidel) for a $2.00 cigar and later begins to circulate the rest
of his unbacked wooden match sticks into the poker game a few at a time
from time to time as needed. As the night progresses Preston has an awful
run of bad luck and by the end of the game (and this example) he has lost
and/or spent all of his original 20 match sticks plus 60 of the 100 secret
bogus wooden match sticks leaving him with 40 wooden match sticks total.
Now the game ends and it is time for all 5 players to cash in all wooden
match sticks. Unbeknownst to all there is now an extra 100 new crisp match
sticks distributed into circulation among players (slipped into play by
Preston Clinton) in addition to the original 100 match sticks. That's 200
match sticks in circulation with only $5 US federal reserve paper money
still sitting in the poker kitty "Fort Knoxx" bank to back them up!
IMPORTANT CLUE: In 1964 when the United States went off the Gold standard all existing paper and silver currency was collected up and replaced by the Government because the money prior to that time actually said right on it this note redeemable in "gold or silver". As a kid I even rode the bus up to the San Francisco Mint and traded a dollar to see what would happen. The economy didn't crash. They just handed me a tiny manilla envelope with something that looked like bits of silver solder inside. I was very excited to have had the Government make good on what my dollar said on it right before my eyes. No coup d'état de tat, really nothing more than a cheerful exchange handled by a librarian looking lady behind one of those 1/2 doors like at the post office. All new currency replacing bills printed ever since that time now instead say "backed by Lawful Money". Can't you just hear Andy Rooney asking with that instantly recognizable tone in his voice "And, what is Lawful Money anyway?" Switzerland is still on a gold standard and their currency is still backed by gold and silver I believe while Preston Ford I believe it was used his god given birth right to change things so that ours is not?
In our simplified example every one else at the end of the game through shrewd and conservative betting and astounding luck also managed to wind up with double the amount of match sticks that they started out with and coincidentally all 5 players have exactly 40 match sticks each waiting to be cashed in at the bank kitty "Fort Knoxx"!! The guest #6 who acted as the banker and did not play poker counted 200 wooden match sticks and emptied the kitty and counted $5.00 and took out his calculator and determined that each player would receive 2.5 cents per match stick. The players (except for Preston) all were excited having doubled their stacks (so to speak) but when cashed out could not figure out why they only received $1.00 for their 40 match sticks when each had doubled their original 20 match sticks/$1.00 starting buy in.
Please hear me out. To see how smart you are here is an easy
POP QUIZ:
1.) How much was each match sticks worth when the game originally
started?
($5.00 divided by 100 matches = 5 cents each)
2.) How much is each match sticks worth at games end upon cashing
out all players match sticks with all money in "Fort Knoxx"?
($5.00 divided by 200 matches = 2.5 cents each)
Fact A: Preston Clinton's introduction of unbacked monetary units caused inflation to occur. Over the course of this game each monetary unit lost 50% of it's buying power to inflation.
3.) Did any player come away from the game ahead?
(Yes. Preston Clinton did quite well. Played poker all night and smoked
a cigar for free)
4.) How many match sticks would it have taken to equal the value
of a $2.00 cigar at the beginning of this game?
($2.00 divided by 05 cents = 40 match sticks)
5.) How many match sticks would it have taken to equal the value
of a $2.00 cigar at the end of this game?
($2.00 divided by 025 cents = 80 match sticks)
6.) Did the real value of any $2.00 cigar ever go up or down at any time during the game? (No. Inflation caused match sticks/monetary units to devalue in half so the amount of monetary units/match sticks needed to buy one to double.)
Fact B: Homes really do not "go up" in value as a result of inflation. Instead only the "amount" of monetary units required to buy the house "goes up" each time inflation cuts the buying power of each of our dollars. (i.e. For example: A home that sold in 1960 for $30,000 that might even cost $300,000 to buy back today never increased in value by a cent. Homes do not grow bedrooms or great rooms. Instead, since that time our government created and distributed enough unbacked currency, debt, Tills, lawful money, call it what you will (wooden match sticks) into circulation to rob 90% of the buying power of every one of you and my dollars requiring 10 times as many of today's dollars.
Fact C: Preston Clinton can legally continue to manufacture and distribute bogus monetary units for the cost of the ink and the paper which will consistently cut into the value of every dollar you earn save and plan for now and in the future. inflation is an invisible thief in the night which will rob you of 50% of your dollars buying power without ever even coming to your home. Inflation is the retirement planners worst enemy. You need to learn how to recognize or identify this enemy as step one in gaining the upper hand against it.
Compound Inflation:
Fact D: Your enemy has an accomplice. You know compound interest as
something very good. Compound inflation on the other hand is a bad twist
to something that is already your worst enemy in the money or investment
world. Some call it a form of double taxation.
To best explain what I call compound inflation (another one of Preston's
god given birthrights), you'll need to answer the following 2 questions
correctly.
7.) How much did the $2.00 cigar in the above example really cost Preston Clinton? (7.6 cents. i.e. Preston traded 40 of his 100 bogus match sticks/ or 2/5ths of his secret box that he paid only 19 cents for. 40% x 19 cents = 7.6 cents)
8.) How much actual money did Fidel the seller of the $2.00 cigar receive from Preston Clinton for his $2.00 cigar taking inflation into account?
Fact E: Fidel was not skilled at or able to recognize or identify inflation.
Fidel thought he was receiving $2.00 for the cigar when in fact;-
first of all Fidel, with out knowing it, in effect was actually aided
Preston in financing 100% of the purchase price of the cigar for Preston
by accepting lawful money instead of demanding gold or silver. Preston
knew that because of his God given birth right he could help himself in
this example to a 96.2% reduction in the purchase price of the $2.00 cigar
from Fidel without Fidel ever even knowing it because Fidel could not recognize
or identify inflation. If Preston introduced bogus new monetary units to
pay for the cigar they would only cost Preston 7.6 cents to produce saving
Preston $1.92 off the $2.00 purchase price. Furthermore Preston being an
extra good politician knew that (while appearing to be a fair trade) Fidel
couldn't cash in the 40 lawful money match sticks till the games end at
which time their value would been devalued by 50% because of the inflation
the very purchase transaction itself caused.
Fact F: Being a very good politician Preston through his God given birth right is able to:
1.) Get all of his desired purchases financed with in effect no down through the use of crisp new lawful money (instead of ever using gold or silver backed money)
2.) Preston can also get over 92.3% approx.. of the purchase price of all desired purchases through the use of crisp new lawful money (instead of ever using gold or silver backed money)
3.) Preston doesn't have to tell those he trades with (who can't recognize or identify inflation for themselves) that each dollar that Preston pays you with will have up to twice the buying power for him while he's paying you as they will have as you accept them.
4.) Preston will further compound all above profits to himself and
compound all compound inflation losses to all players in all poker games
who accept an iou from Preston.
Fact G: By this particular games end all players match sticks had lost 50% of their value and were subsequently worth only one half the purchasing power as compared to players match sticks at the beginning of the game!
Did anybody have any cash, credit cards, or match sticks physically stolen from them? Match sticks No, no one. Money? Yes, by games end everyone lost 50% of the effective or real value of every penny they had.
How many match sticks would it take to buy a $1.00 beer when the
game started? Twenty. How many match sticks would equal that same $1.00
draft beer at the end of the game? Forty!. Did the value of a draft beer
change? No. The price, or the amount of match sticks needed to buy
the beer doubled! If no theft occurred, how did each person lose 50% of
their match stick buying power? Well, there was a false increase in the
amount of match sticks in circulation by Preston against what was held
in the Fort Knoxx tin box bank resulting in
an invisible reduction in the value of all of the players' match sticks.
Because Preston
had spent all of his money and needed more, he just decided to take
half of each and
every dollar circulating in the game . . . and do it invisibly. By
spending his unbacked
match sticks he removed half of the buying power ("cash in" value)
from all the match
sticks in the game, money belonging to the other players!
Since no one can find any match sticks missing,
Inflation is the perfect crime!
Somewhere else in another larger poker game right now a few of Preston's relative's getting ready to introduce billions in unbacked match sticks at another table in another game, and most of those players don't know where half their buying power has gone either. Especially since no one can find anything missing. And since Preston's relatives have been rolling and compounding the profits from the last 4 years. of poker games in with the introduction of new unbacked monetary units even though everyone at that table has doubled his or her stack of chips, guest #6 who is not playing just figured out on his calculator that all players will now have to work from January 1st to July 4th of every year from now on for the Clintons.
Fiction: Because of this, all players have deemed the 5th of July as our real "Independence Day".
you didn't understand the match stick metaphor please read the following.
Cast and Characters
Here's a whole case of new unbacked monetary units
Fiscal Year 1996
| DENOMINATION | NOTES PRINTED |
| $ 1 | 4,166,400,000 |
| $ 2 | 51,200,000 |
| $ 5 | 1,158,400,000 |
| $ 10 | 1,011,200,000 |
| $ 20 | 1,363,200,000 |
| $50 | 441,600,000 |
| $100 | 1,251,200,000 |