If inflation averages growth of 4% per year…

If inflation averages growth of 4% per year, in 35 years a $100,000 salary will be worth only about $30,000 in purchasing power, supply-side economist David Ranson wrote in today’s WSJ opinion piece accompanying this graph. I thought that was pretty shocking! 

Then I looked up inflation over the last 35 years (1972 – 2007) and found that a $100,000 salary in 1972 is reduced to about $25,000 of purchasing power today. In other words, even worse.

If you’re working, this may not be so bad. But what about those of us who will retire to live on our savings rather than a company’s or government’s payments that may be indexed for inflation?

Prospects appear even more daunting when you read Ranson’s prediction, based on rules of thumb that have worked in the past, that US inflation is heading for rates closer to 6% than 4% – a more likely trend with continued lowering of interest rates by the Fed. 

The real problem, Ranson says, is not inflation but the sick dollar. I’d suggest peeling back another layer of the onion to look at the poor spending priorities and economic policies sickening the dollar. Will any of the current candidates be able to unweave this web?

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