The Government’s Secret War Will Leave You Broke

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Posted by The Savvy Retiree on March 21, 2016 in Money Saving Strategies, Personal Finances

“The supreme art of war is to subdue the enemy without fighting.” — Sun Tzu

Usually when the government declares war on something, it’s a great success…for the “something,” that is.

Think about the so-called “War on Poverty” or the “War on Drugs” or the latest nonsensical and unending misadventure, the “War on Terror.”

To take them in order…

In 1964, Lynden Johnson announced in his State of the Union address, “This administration today, here and now, declares unconditional war on poverty in America.”

He must’ve misspoke. Judging by the results, surely he meant to declare “War on the Poor.”

Since then, a long list of meddlers and do-gooders from both sides of the aisle have spent $22 trillion on various programs and initiatives to “fight” poverty (not including Social Security and Medicare). Adjusted for inflation, that comes to roughly three times the cost of total combined U.S. military action since the American Revolution.

Net result: Poverty rates in the U.S. were already falling when Johnson’s “war” began…from about 35% of the total population in the late ‘40s to around 15% in the mid-‘60s, when the anti-poverty spending began. Since then, the rate has ebbed and flowed a couple of percentage points, but remains virtually unchanged.

Government initiative – 0 | “Something” – 1

Next up…

Since Richard Nixon began his War on Drugs back in 1971, successive administrations have doled out more than $1 trillion (of taxpayer money) in their “battle,” turning the “Land of the Free” into the nation with the highest (by far) incarceration rate in the world along the way.

Net result: Higher prices for narcotics = record profits for dangerous drug lords.

Meanwhile, both drug usage and addiction levels remain virtually unchanged.

Government initiative – 0 | “Something” – 2


The third war is a little more difficult to measure. How does one gauge the success or failure of war on a tactic? And what if, by waging said war, the various combatants each employ the very tactic in question? Would that not equal a proliferation of that tactic (in this case “terror”)…and by extension, a victory for it?

Hmm… Perhaps we’re overthinking it.

Official records reveal that the War on Terror, the youngest of our three example battlefields, has so far run up a tab of roughly $1.8 trillion…that’s over and above the existing and ever-expanding budgets at the DoD, the FBI, Homeland Security, the State Department and all those mirthless individuals at the TSA making sure grandma doesn’t board a flight with more than 3.4oz of toothpaste in her handbag.

Net result: Aside from the financial cost of the War on Terror, roughly 4,500 U.S. soldiers have been killed and 32,500 wounded during the ongoing—though difficult to define—conflict. Personal dignity and freedom from massive government surveillance might also be counted as among the casualties.

Government initiative – 0 | “Something” – 3

A cursory glance at the track record seems to suggest that, when the government declares war on something, the smart money ought to be on that something.

But what if the government doesn’t officially declare war? What if the war is more…covert?

In the last issue of The Savvy Retiree Daily, we noted two undeclared battles raging this moment.

One, a war on savers. And two, a war on cash.

Really, these are two fronts in the same war: a war on you…on your wealth independence. Let’s take a quick look…

Astute readers will not have failed to notice the many and varied acronymic “codenames” for the first mode of attack…

Quantitative Easing (QE)… Zero Interest Rate Policy (ZIRP)… Operation Twist (yield curve distortion)… QEII, and now… Negative Interest Rate Policy (NIRP).

What does it all mean?

In response to the so-called “Great Recession” of 2007-08, the Federal Reserve, along with central banks the world over, undertook “extraordinary measures” to strap interest rates to the decks of their sinking ships. The result was supposed to “stimulate” the economy.

And indeed, there was plenty of stimulation…just not in the right places.

Instead, these bizarre and unprecedented policies ushered in one of the greatest wealth transfers in modern American finance. A transfer, that is, from Main Street’s “earn-and-save” economy to Wall Street’s “borrow-and-gamble” one.

In a nutshell, artificially low interest rates meant savers—particularly retirees relying on fixed-income investments—earned a lower yield on their deposits.

That’s called “punishment for prudence.”

And those same low interest rates also translated to cheap credit for the first in line to borrow: Wall Street banks, hedge funds and high net worth investors who are enticed to speculate on an increasingly bubblicious stock market with virtually free money.

That’s called “reward for profligacy.”

Moreover, pushing interest rates down below the “real” rate of inflation means your purchasing power gets stretched paper thin…higher prices pulling in one direction; lower earnings (on savings) in the other.

Eventually, something’s gotta give…

(See past The Savvy Retiree Daily musings on the effects of compounding inflation here.)

And yet, sneaky as all this sounds, this is merely the battle you can see…even if it does attempt to conceal itself beneath the camouflage of modern day econo-jargon.

It’s the second prong of the pincer attack that could be the real secret weapon.

A look at the “War on Cash,” next issue…

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T&P Tool Shed

By the staff of Truth & Plenty

U.S inflation rates have been calculated in a number of ways over the years, and there is a surprising disparity between the results of the different methods. According to the government’s current method, based on the Consumer Price Index (CPI), inflation has been kept at reasonable levels since the high rates of the 1970s. However if we assess today’s figures according to the government’s own method that was in use during the 1980s we start to see a different picture.

Walden Consumer Inflation