Inflation, that dirty word that just won’t go away. Inflation, that process which constantly eats away at your financial future like termites…at least until you finally give way like wood hollowed out by voracious insects. But wait, it doesn’t exist anymore according to our government…termites yes, inflation no.

As we know, “statistics lie & liars use statistics,” so to be fair we should use the government’s own statistics, specifically the Producer Price Index or PPI, to measure inflation. To be even more fair, I went to the Inflation Calculator online which was developed and maintained by S. Morgan Friedman. Any search engine can find it.

So, in our never-ending search for truth, as compared to the nonsense being fed to the mostly gullible US public, let’s see what has happened between 1801 and 2001.

1) What cost $10,000 in 1801 only cost $4894 in 1901. What cost $10,000 in 1901 actually cost twice as much in 1801...$20,433. Simply put, the purchasing power of the US dollar more than doubled in that century. Sadly, I wish I could stop here as those were the “good old days.”

2) In direct contrast to the above century, what cost $10,000 in 1901 cost $204,000 in 2001. And what cost $10,000 in 2001 only cost $489 in 1901. In other words, the purchasing power of the US dollar in the last century lost 95% of its value…a disaster, but like termites, hidden from view until too late.

3) Baby Boomers? $10,000 in goods in 1945 cost $96,962 in 2001. Or, $10,000 in 2001 goods only cost $1032 at the end of WWII. If my calculator serves me right, that is a loss of about 89% in the purchasing power of the dollar since boomers started to arrive on the scene. If you are not scared, you should be with retirement looming, soaring medical & drug costs and yet another expensive war on the horizon, meaning Iraq plus what might happen to oil supplies, or a much wider war. Some estimate that in the last 10 years the US government has created about $1.5 trillion in new (funny) money to… fuel the stock market bubble so the CEO’s and those they pay off can get rich?

In addition, some expect that the “War on Terrorism,” being open-ended, will cost another $1.5 trillion. War is the most costly pursuit in human history and how many wars have we had in the last 90 years or so? And who profits? The “usual suspects,” the fat cats which is why Eisenhower warned us to “be wary of the military industrial complex.” The Vietnam War caused double-digit inflation and we are in the middle of the biggest military build-up since Vietnam. Remember who pays for these wars?

4) Speaking of Vietnam, $10,000 in 1976 goods cost $31,656 in 2001...ouch! And what cost $10,000 in 2001 only cost $3159 in ‘76. So, inflation the “silent killer,” has gotten even worse in the last quarter-century.

5) The last 10 years? What cost $10,000 in ‘91 cost $13,012 in 2001 and what cost $10,000 in 2001 only cost $7685 a mere decade ago. That’s about a 24% drop in purchasing power, or 2.4% a year.

This should be a wake up call to all American who are not multi-millionaires. We now need $2 million in the bank at 3.5% to have a chance at a comfortable retirement. Americans are starting to react by pouring money into real estate. Hopefully this isn’t a bubble like the dot-coms? (Much real estate outside Boston has doubled in the last 2 years.) CNN just reported that only 10% of Americans now view the stock market as a safe place for their money and view their 401-k’s with suspicion. Wonder why? CNN reports that gold is up 17% in the last year due to war fears. And if certain Wall Street firms weren’t holding gold down in an effort to avoid going bankrupt??? They bet that gold would go down in value…oops! Hint? There isn’t enough gold in the entire world to cover the $800 billion it would cost to wind down all those short positions. Meltdown occurs when gold breaks through $354 so this might save a few million investors. After all, how much did you make on your non-real estate investments vs. gold in the last year?

What to do? Diversify into undervalued assets such as gold coins that have limited downside vs. stocks, bonds & even real estate at current levels, & which can fund IRA’s. Save more. Think about foreign currencies which pay up to 6% interest. And pray for world peace. We can’t afford to be the world’s policeman.