Cheat Sheet Q & A:


The Question:  How about "deflation" as a topic for your Cheat Sheet Q & A?


I was surprised to find out that the official policy of the Federal Reserve is to try to maintain a target of a 2% annual inflation rate?  Why not zero?  So government policy is to have prices rising every year.


Is "deflation" the same as saying we have a negative inflation rate?  What would cause this?  What are the implications regarding employment, consumer spending, investing?  Has the US or other countries experienced periods of deflation?


Bottom Line:  Indeed deflation is basically a negative inflation rate.  It is the devaluing of assets in an economy.  And yes it has happened in the United States and we have another modern example with a developed economy.  Let’s go through those examples. 


The United States experienced deflation during the Great Depression.  From top of the economy preceding the Great Recession to the very bottom of the Great Recession, economic activity decreased by 25%.  The actual value of that economic activity (when measured in international trade dollars) decreased by greater than 60%!  A more modern example is the Japanese economy.


Since 1980 Japan’s economic has slipped into negative territory in 21 of 33 years!  The average growth rate of their economy has only been 0.5% on average per year over that entire period of time.  As a result China’s economy actually passed Japan’s as the world’s 2nd largest economy last year. 


The causes of deflation can vary but it’s generally a loss of credibility in the economy in conjunction with the currency of the country that would cause it.  In the case of the US, the stock market bubble that had been created due to excessive levels of margin, or borrowing, was the initial catalyst.  Subsequent policy that led to record levels of debt being accumulated by the United States exacerbated the deflation that was already in motion.  In Japan’s case their Government allowed debt to GDP to rise exponentially (in an attempt to stimulate a slow growth economy – sound familiar) to a level of greater than 200% debt to GDP (which is exceptionally high).   


In short, deflation is never a good thing because the value of all assets and currency depreciates.  Moderate inflation is a positive.  Why?  It allows for upward mobility.  Over the previous 100 or so years the average US inflation rate has hovered near 3%.  Meanwhile the average income increase has been about 3.5%.  That’s how the average quality of life for the average American has slowly improved over time.  Additionally if you save and invest in assets that appreciate above the average inflation rate like real-estate (4.1%) and stocks (9%) you will progressively improve your lot in life.  So the Fed is right to desire low inflation…  Now the policy they engage in to achieve that objective…  That may not be the best idea.


If you have a topic or question you’d like me to address email me:


Audio Report:




The average new mobile plan with data really is hundreds cheaper than two years ago:


Bottom Line:  I’ve reported frequently on price cuts by various mobile providers of late.  Recently I demonstrated that the average family of four could likely save more than $1000 per year on a new plan vs. previous options.  Now that we have a full month of data based on the new lower pricing from all of the major service providers we have an idea of the exact cost savings. 


  • The average cost of a mobile plan (with one of the major service providers) with unlimited talk, texting and a data plan was $85 in January
  • The average cost of the same type of plan two years ago was about $118


So there really is cost savings of nearly $35 per month as a result of the price competition.  So if you are going to come off of a two year contract soon, you should shop for a better deal, even with your current provider if you would like to stay with them because the prices really are significantly lower.  Competition can be a great thing.


Audio Report:




Can you afford your pet?:


Bottom Line:  During the Great Recession we learned that we valued our pets at times even more than ourselves and our human family.  During the recession the one member of the family the average American didn’t reduce spending on was the pet.  That’s continued over the last two years as well.  Despite the economy growing at less than 2% in 2012 & 2013, our spending on pets increased by 10% during that period of time.  All told:


  • 68% of American households have a least one pet
  • The average cost of a dog in year one is $1580
  • The average cost of a cat in year one is $1308


That’s certainly not cheap…  In subsequent years your pets will average a $670 to $695 annual expenditure.  So by the time you add in multiple pets you’re talking about significant expenses.  Ashley and I have pets and we love them so that’s not where I’m going with the question…  But for those who are struggling financially, that’s probably not the right time to seek a companion or multiples.   


Audio Report:




Even with the ultra wealthy - Hard work & investing tops salary:


Bottom Line:  PNC recently had a research study that showed that the average millionaire attributed the overwhelming majority of their wealth accumulation to saving and investing over time (more than 60%), while just a little more than 20% said that a high salary was the biggest driver of wealth accumulation.  That goes hand in hand with how the average person with the average income can become a millionaire within 25 years.  But what about the ultra wealthy?  Those who are worth $5 million or more? 


PNC studied this wealthier group and they found…  Nearly the exact same thing.  Greater than 60% of those with $5 million or more in assets attribute their wealth accumulation to saving and investing over time.  And yes, only about 23% said a high salary was the predominate reason.  So…  Here’s the follow-up to my average American millionaire story. 


The average income ($45,000) per year with reasonable savings and investment levels won’t result in $5 million or more without significant good investment fortune.  But…  If you earn above average income.  Say $85,000 or more per year it is possible to become a multi-millionaire just like the average person worth $5 million or more.


Audio Report:




The unemployment rate is more than twice the minimum wage rate: 


Bottom Line:  So naturally the number of Americans on minimum wage is a large number right?  I mean after all with as big of an issue as the administration has made over the need to federally dictate a higher rate quickly must be because of the enormous impact.  So I was looking through the latest info from the BLS and found these little gems:


  • The % of the workforce earning min. wage is…  2.8%
  • The average age of a person on min. wage is under the age of 25 and is in school
  • The rate of people on min. wage is the lowest in ten years.


So…  Where’s the issue again?  Isn’t the free market dictating that 97.2% of people working are worth more than the Fed’s have dictated?  If the majority of min. wage workers are young and in school is there really a dire urgency to correct what the evil companies won’t do on their own? 


This sounds like a different version of the ACA argument and didn’t that work out well…?


Audio Report:




The new unacceptable economic view:


Bottom Line:  I’m tired of hearing the new prevailing view many economists that the United States of America can’t grow the way it once did.  After last week’s CBO report demonstrating that millions of would be employees won’t be working in coming years due to the ACA (many by choice because they can collect Government handouts by working and earning less), politicians like Chuck Schumer have spun it to be a good thing. 


It’s true that if many Americans desire to work less and rely more on the Government that indeed we won’t see an economy that will grow the way it once did.  That’s exactly the Euro Socialist model that led to you being here in the first place.  That’s the irony of this story.  If economic opportunity exists then immigrants from around the world will clamor for the opportunity.  Unless you’re of Native American descent the reason your ancestors came here was for the freedom and opportunity to achieve more than in Europe.  History matters.  The more we create a society that is incentivized to  do less and get more from the Government the less opportunity and economic growth that will ensue.  The less reliant and intrusive a Government is, the greater the economic opportunity and upward mobility in an economy. 


Audio Report: