Wednesday, November 19, 2014

Jim Rickards Latest Article on "The Money Illusion"

Readers here know that Jim Rickards is one of the sources we cite here often. The reasons are simple. He has the background and credentials that provide credibility. He has worked inside the system so he knows what he is talking about from personal experiences. When he provides an opinion or analysis, he backs up his views with data that you can verify on your own. All this makes him a valuable information source in our view here.  Please read the full article linked below to get full context.

Here is a link to his latest article titled "Beware the Money Illusion Coming to Destroy your Wealth".  This is a typical well written Jim Rickards article where he takes a complex topic and breaks it down so those of us without his background can understand the main points. In this article he explains how inflation is used to transfer wealth from savers to debtors in a way that the public does not really grasp. He uses some simple illustrations to show you how the public can be made to accept the this transfer of wealth without complaining.  

It's basically because of human nature. In one example he shows you that if you get a 2% salary cut, you are likely to be unhappy and complain. But if you get a 2% raise (but inflation rises 4%  at the same time) you will probably be OK with that. It's because a 2% raise feels better than a 2% pay cut even though you end up in exactly the same position either way.

But for a Central Bank and the government, the 4% inflation is way better for them since they have enormous debts built up (as it is for all debtors). They can payoff the debts with cheaper future dollars. On the other hand, deflation is a nightmare because they have to payoff the debts with more expensive future dollars. This is why governments and Central Banks will fight deflation to the death.

Here are the first three paragraphs of this new article by Jim Rickards. Just click the link above to read the full article.

"Amoney illusion sounds like something a prestidigitator performs by pulling $100 bills from a hat shown to be empty moments before. In fact, money illusion is a longstanding concept in economics that has enormous significance for you if you’re a saver, investor or entrepreneur.
Money illusion is a trick, but it is not one performed on stage. It is a ruse performed by central banks that can distort the economy and destroy your wealth.
The money illusion is a tendency of individuals to confuse real and nominal prices. It boils down to the fact that people ignore inflation when deciding if they are better off. Examples are everywhere."

Added note: Jim Rickards appeared on Bloomberg TV this week. They broke his interview down into 5 parts. You can view any of them that interest you using the links below:

Islamic State's Ability to Mint Money

Review of the G20 Communique

Japan in a Depression


  1. Kudos to Rickards for showing us in simple terms how the outright theft of our hard earned savings by government is accomplished daily. Using the smoke and mirrors deception of stealth inflation and low interest rates it is theft without complaint.. A Mr. Ackerman also presents this theory in well written lessons that shows you this clever formula being used to separate you from the illusionary profits you thought you had. You will note that your taxes are never indexed to inflation so you are always paying taxes on phantom profits. Not a bad gig if your the Fed and central banker trying to reduce the deficit without revolution.

  2. Thanks for the comment. Obviously we respect Mr. Rickards here and will continue to follow his articles and interviews.