“NEGATIVE REAL INTEREST RATES”

and other such political correctness…

"When a government controls both the economic power of individuals and the coercive power of the state... this violates a fundamental rule of happy living: Never let the people with all the money and the people with all the guns be the same people." -- P.J O'Rourke

Political correctness has really changed the world we live in. Words that once meant something beautiful now mean something horrid and vice versa. It’s come to the point where you need an interpreter to understand what is really being said today. But evolution of words happens.

For example: many moons ago the word “awful” meant that you were full of awe for someone or something. Today it means something entirely different. I’m not blaming anybody for this word evolution, just acknowledging it.

For example when you hear such words like “Negative Real Interest Rates” in the news…what are they talking about?

Well it just so happens that “Negative Real Interest Rates” really means…when consumer price gains (inflation) is higher than the cost of borrowing. And what might you expect from “Negative Real Interest Rates? That is plain and simple once you understand what it means. The consequence of “Negative Real Interest Rates” is that they encourage savers to go out and spend, but perhaps even worse, they encourage reluctant investors to go out and invest for a market that doesn’t exist.

Here’s another flimsy factoid that is very popular but so very far from the truth. Filmmaker Michael Moore recently told protesters in Madison, Wisconsin, that “the only problem in society today is that taxes on wealthy people are too low:” So why is that factoid so damaging?

To understand this one will take a moment longer than exposing the history of the word “awful” or the phrase “Negative Real Interest Rates” so hang with me for a flash because your lifestyle and your country are depending on you understanding this one.

My friend Todd helped me understand this completely and it is so simple that I knew I had to share this with each of you as well.

If you would have been able to take ownership of a $20 dollar bill in 1913 (that was when you could buy an ounce of gold for $20) and allow that $20 bill to accrue interest annually until today @ 20% you’d now be a billionaire (over $1.1 billion.)
If, however, you were to have been in a 50% tax bracket (average tax brackets were higher than 50% over the past 98 years) then you’d now only be the owner of $227,779.00.

And what would Uncle Sam have made in the same time period off you? Surprisingly at a 50% tax rate, Uncle Sam would only have made $227,779.00…same as you.
So let’s take Michael Moore’s factoid concerning taxation and put it into practice. Let’s raise the tax rate by 10%. Now Uncle Sam only collects $56,548.00 and you would have only kept $37,719.00. Hum… that didn’t work out quite the way Mr. Moore said it would, did it?

So what if Uncle Sam lowered his demands and only demanded 10% of what you’d earned? Surprisingly enough, for the Michael Moore’s of the world, Uncle Sam would have made more…$24,388,620.00 more to be exact… for a total of $24,616,399.00! And you? What would you have been able to keep of your original $1.1 billion? You’d have been able to keep $221,547,428.00! Ah… that’s better isn’t it?

The hard facts are that Uncle Sam could have made even more if he wouldn’t have been so greedy. If Uncle Sam would have lowered his demands to just taking 6% of your kitty then he would have garnered $27,419,817.00 of your gains and left you with $429,577,156.00.

But crazy folks, like Michael, are telling stupid stories about how the rich and middle class aren’t taxed enough, right? Well the truth is out. Higher tax rates only impoverish you and your country. That is why John F. Kennedy lowered tax rates! He understood what lowering tax rates would do. And it did just what he projected...made Uncle Sam richer and made every American wealthier!

We currently live in a country were taxes are a way of life. Because of those taxes certain populations have become very dependent upon the working class as well as the rich class, to support them through government policies. But raising the taxes on the rich and middle class will only decrease the amount of money that is available for those populations that depend upon government for their very existence. Wake up America! Your lifestyle and your country are depending on you. Let us remember the warning words of Thomas Jefferson, "To compel a man to subsidize with his taxes the propagation of ideas which he disbelieves and abhors is sinful and tyrannical. A government big enough to give you everything you want, is big enough to take away everything you have."


by Tomas McFie DC PhD

Check out the Orange County Rx for Wealth Workshop scheduled for April 15th & 16th.