Inflation Redistributes Wealth
Tax isn't as powerful of a redistribution tool as one might think. Jason Hartman hypothesizes that inflation is actually the most powerful redistribution tool. One of the number one reasons for this is it's largely hidden. Inflation is somewhat of a slow
burn, it creeps up on people. Slowly, but surely, it redistributes wealth.
So who loses and who benefits in this situation? Inflation will redistribute wealth from lenders to borrowers and from old to young. Why is this? Most seniors are on fixed income, meaning their spending power will be destroyed when inflation rears it's ugly head.
Everything they want to buy will begin to increase in price, but they won't have more money. The young, who are more in debt, won't be affected as harshly, but the old, who have saved for many years and have assets, will suffer more. As unfair as this may sound, it's a reality.
Consumer Price Index
Inflation is largely measured by the consumer price index (CPI), or an index of the variations paid by consumers for retail goods and more. The CPI is a largely manipulated index. Computers are a good exampl
e. As computers are constantly upgraded, they become largely outdated within a short
period of time. Consumers are often tricked into thinking they're paying the same or half the price for the computer upgrade, when they're actually paying twice the amount.
Substitution is another form of manipulation. For instance, if the price of beef goes up, it's assumed everyone will just buy chicken or some other meat. Many important items are arbitrarily stripped from the index. There's a part of the CPI called the Core Rate, where food and energy is removed. The goal is to trick us into thinking inflation is lower than it really is.
Recently it seems we've had more deflation than inflation. This makes now the perfect time to trade dollars for solid investments, things which have universal need and value. Jason Hartman recommends investing in income property in diverse locations and markets.
Make a smart investment in income property now and inflation can help you create future wealth and lessen debt. For more information about inflation and wealth distribution, read our recent article, “Inflation: The Hidden Tax.” (Top Image: Flickr | 401(K) 2012)
The Young Wealth Team