How Inflation Will Ruin Your Retirement Plans
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Earlier today Adrian Ash wrote a great piece about how U.S. equity buyers just suffered a “decade of no returns.” The Mogambo Guru says this isn’t a new phenomenon. Inflation has wiped out most stock gains since 1980. What’s more, the dollar index has lost almost half of its value versus the euro during the Bush presidency. In short, says Mogambo, long-term stock market investing is not going to help most Americans fund their retirement plans…
If you think that things aren’t too bad and that you just have to hold on, hold on, hold tenaciously on until you retire, which is when you can start consuming all that money you have invested in your retirement plans, then Larry Edelson of MoneyandMarkets.com has some information that will make you crazy.
He has compiled some statistics that illustrate the loss of buying power of the dollar since 1980, thanks to the Federal Reserve creating so much money and credit all that time, and thanks to the corrupt Congress (except Ron Paul) who aided and abetted them every dime and every dollar of the stinking way.
His research shows that, for instance, the average price of a house was $62,200 in 1980 and $196,300 in 2007. To compare, monthly rent on an apartment was $300 a month in 1980, and $1,082 in 2007.
The one statistic that I think is most instructive is “Average cost of a new car”, which in 1980 was $7,200, and in 2007 was $26,950. The reason that new car prices fascinate me is not because of my raw, seething envy at people who can afford new cars, as I realize that I will never be able to afford a new car and will always have to drive cheap, rusted-out pieces of automotive crap because I am too lazy to work and because my family costs a bundle, but I use new car prices as an illustrative device, because the price of a car is a big expense, which makes the average price of new car a nice, handy proxy of retirement investment needs, which is a big expense if you do it right.
So, to show you that investing in the stock market over the long-term is a guaranteed loser for the majority of investors, suppose you had invested $7,200 (the price of a new car in 1980) into your precious little retirement account in 1980. Now, in 2008, after 28 years, your face burns with shame and you hear the scornful laughter of The Mogambo ringing in your ears when I tell you that that your original investment of $7,200 would have to have, after paying a 15% capital gains tax on the increase from your original $7,200, risen to $29,912! And you got this sum by having a superb annual 5.2% investment gain! Every year for 28 years! No losses! Marvelous!
Now, to those blithely uninformed as to the horrors of inflation in the money supply and the loss of buying power it creates, this seems like a nice gain: $7,200 grew to $29,912. It almost quadrupled!
If you thought that, then The Mogambo is laughing at you, and you will find out why when you discover that you actually didn’t make a damned dime! Hahaha! You broke even!
Your gain on the $7,200 is just enough for you to have, after 28 years, an after-tax price of a new car ($26,950), which means that you just break even! Hahaha! In essence, you invested a new car to get a new car, after waiting 28 years! Nice “investing for the long-term” dudes!
And yet people think they are going to fund a retirement by investing in the stock market? Hahahaha! It ain’t a-gonna happen! Welcome to the real world, chumps!
From what Bill Bonner, here at The Daily Reckoning wrote, I see that this kind of crap has been going on a long time, as “Since ‘67, consumer prices are, officially, up seven times. Wages in America are up exactly the same amount. In other words, during your editor’s entire adult lifetime Americans’ per hour earnings have not increased a single penny.”
Even worse, The Desidooru Saloon column notes that the dollar is falling faster than ever, as “the dollar index has fallen 41% against the euro during the Bush presidency.” The dollar has lost almost half of its value in eight years! Astonishing!
This means Really Bad News (RBN) for people who have no job for one reason or another (fired, retired, young, handicapped or in prison); not only do they not have an income, either then or now, but the little bit of money they do have buys half as much as it did only eight years ago!
It is only the safety and security of gold that allows me to laugh, “Hahaha!”
Source: New Car Smells Like Long-Term Investing
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Tags: bear market, Downturn Strategy, Federal Reserve, investing in gold, Richard Daughty, US inflationAbout the Author
Richard Daughty a.k.a. Mogambo Guru is general partner and COO for Smith Consultant Group and the writer of The Mogambo Guru economic newsletter, an exercise to better heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and other fine publications.