How Does Inflation Hurt the Poor and Middle Class?

Let’s consider how inflation works on your savings. If the total amount of money in existence is increased by 5% in one year, then all money is devalued by 5% that year.  Barring all other variable prices will eventually rise by 5%.  This is no different in principle, than having 5% of your money taken out of your savings account.

Doubt that we have inflation? Consider this:  today’s dollar is worth about 5 cents compared to 100 years ago.  What does this mean?  It means that if you were born 100 years ago and your parents put a dollar in a safe for you, today you would have lost 95% of it’s value.  Our government is continuing as routine a policy of inflation.

We’ve all heard that some inflation is good for the economy (it’s not, but we’ll leave this argument for another day), but is it good for the poor and middle class?  Certainly it is not.  Inflation eats away at the savings and security of those who cannot protect themselves against it.

The poor have no assets to protect them against inflation.

The middle class have some assets to protect them against inflation.

The rich have most of their assets protected against inflation.

Those with Government contracts are protected against inflation because they receive the newly created money through government contracts.  This is value indirectly stolen from the poor and middle class and given to the rich.

Consider this: you are poor and you would like to save up cash for a large purchase. As you save money, you reach a point when the cash you have in savings loses value faster than the rate at which you can save.

Each year new money is created out of nothing and put into existence.  This is an indirect tax on the poor and middle class or anyone who is not hedged against inflation.  This is an immoral, though lawful, system.

Suggested Reading

The Cruelest Tax of All

Inflation & Deflation

Two Cent Pennies

Free Book on Inflation