Plain Truth Magazine
August 1969
Volume: Vol XXXIV, No.8
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Eugene M Waller & Gene H Hogberg  


   In the past thirty years the American dollar has dwindled by almost two thirds. This means that $100 put in a safe deposit box in 1939 will now buy only $38 worth of goods and services.
   A married man with two children had to earn $14,440 in 1968 to buy what just $5,000 bought a man in his position thirty years ago. That is 188.8% more just to stand still!
   Now look at what has happened in just the last decade. One hundred dollars in cash put away as recently as 1958 will now buy only $79 worth of the essentials of life.
   View the problem in another way. You were a man earning $7,500 in 1958. Today you earn $12,000 a year and have a wife, two teenagers and a home in the suburbs. How much more actual spending money will you have?
   The Tax Foundation figures you have a mere $1,954 left after taxes and inflation. And basically the same problem has afflicted the British public the past several years. Inflation and a crushing tax load have robbed many laborers in Britain of the incentive to work harder or put in extra hours on the job.
   Living costs as measured by the U.S. Government's Official Consumer Price Index have gone up every year for the past decade. From 1960 through 1964, the average annual increase was about 1.2 percent "just a little inflation." But when the U.S. began to send large numbers of troops to Vietnam in 1965, inflation accelerated rapidly. The increase in the price index was 1.7 percent in 1965, 2.9 percent in 1966, 2.8 percent in 1967, and 4.2 percent in 1968.
   This year it has spurted upward alarmingly at an annual rate of 7.5 percent! A dollar received as late as January is worth only 96 cents today, and if the present rate continues, it will shrink to about 92 cents in value by the year's end!

The U.S. is plagued with spiraling inflation. Americans and Britons find it increasingly difficult to make ends meet. Why? How can you, personally, best cope with the rising cost of almost everything?

   INFLATION is, after Vietnam, the U.S. Government's biggest worry. For years this insidious economic disease had been virtually unnoticed. It quietly but steadily ate away, little by little, at the vitals of American economic strength.
   Now the pace of inflation has abruptly accelerated! Almost overnight, it seems, it has turned into an economic cancer.
   So serious has inflation become that leaders in government and business are now calling it the number one domestic and political issue of the country a problem more serious than civil rights, crime, campus unrest.

Economist Turns Prophet

   In a rousing speech in Copenhagen, Denmark, the Chairman of the U.S. Federal Reserve System, William McChesney Martin, Jr., shocked his audience. It is more important to the world, he said, for America to solve its mushrooming problem of inflation than to settle the war in Vietnam.
   Martin called for a return to the basic economic principles of supply and demand, sound credit and limitation of debt.
   "I'm not here to predict collapse and decline... But if we throw these principles to the wind, there is no gadgetry in monetary mechanisms and no device that will save us from our sins," concluded Martin.
   He predicted: "We're going to have a good deal of pain and suffering before we can solve these things."
   But not even Chairman Martin envisions just how much pain and suffering our peoples might have to go through in order to learn our lesson.

Inflation: Disguised Theft

   Inflation is nothing less than disguised theft and we once believed that it was wrong to steal. But gradually, as the nation began to accept the foolish philosophy that there are no absolutes no eternal truths people began to think that under certain circumstances it is all right to steal "just a little."
   On the national level, some influential "growth-happy" economists and political leaders have propounded that inflation is all right so long as it was "just a little."
   As international economic consultant S.J. Rundt so aptly puts it: "What used to be heresy to all Americans is now increasingly taken for Gospel truth by many or even most, namely that one can comfortably live with a little inflation, that annual price rises of 1%-1.5% serve a dynamic society."
   Now the United States is heading into deep economic trouble both at home and abroad. National leaders are beginning to see the error of this "New Economics" philosophy.
   Inflation exacts a terrible penalty, both nationally and individually. Inflation distorts the entire economy. One news magazine stated it bluntly: "Inflation is to the economy what pollution is to the environment a corrosive force that unbalances everything."
   And leading investment analyst, Dr. Pierre A. Rinfret, said in The Institutional Investor: "I feel passionate about inflation. I abhor it, I detest it, and I fear it. It guts the very fabric of freedom and turns topsy-turvy all the things that made this country great."
   According to Mr. Rundt, if the purchasing power of money erodes by 1 percent a year, it takes 70 years for prices to double. But at 2.5 percent per year, a man starting to work at 18 sees prices double by the time he is 46.
   And at the rate of 5.4 percent, at which the U.S. economy was clipping along early this year, a person who begins working at 18 will find that prices have doubled before he is 31. They will have doubled again before his 44th birthday, and redoubled at 57 when he begins to think of his retirement.
   Mr. Rundt concludes by asking: "Is that not theft from what a man earns by the sweat of his brow and from savings he manages to put aside for his advanced years?"
   It certainly is!
   Inflation hurts everybody but some are hurt more than others. "The impact falls most notoriously on those who have the most meager means to withstand it the poor, the black and the aged. It cheats the thrifty, taking money from every owner of a U.S. savings bond and every depositor in a savings account" (TIME, June 20, 1969).

The Deadly "Psychology of Inflation"

   For those on low fixed incomes, inflation can be a personal tragedy. For those who have a means of increasing their income, inflation creates a vicious cycle that feeds on human greed and lust. It destroys moral and spiritual character.
   This grasping, selfish attitude of "out-grabbing" the other fellow, getting now before prices rise still further is politely called the "psychology of inflation." It appeals to human nature. And once this attitude gets a grip on a nation, that nation is in deep trouble.
   As an example of the vicious circle of inflation, the gross pay of construction industry workers in New York City jumped from $170.69 weekly in 1965 to $201.12 weekly in 1968 an increase of $30.43 a week. But the real net gain after inflation and higher taxes? $1.36 per week!
   So in this dog-eat-dog world the union worker all too often tries to get more from his employer (without necessarily producing more) and to get it faster than the government will get more from him in taxes. The producers of goods and services he needs will soon get more from him by upping their prices!
   In order to keep ahead of the game, some unions are now talking of annual contracts. If they sign a two or three year contract they fear that inflation will increase so much that their workers will come out on the short end.
   The longer this upward inflationary spiral continues, the more vicious it becomes.
   The dilemma in coping with inflation is the psychology of inflation. Inflation psychology feeds on itself. Labor demands higher wages because it anticipates higher prices. Management raises prices and capital expenditures because it anticipates higher costs. The investing public turns to speculation.
   As inflationary expectations turn to reality, inflation takes on a snowballing effect. Once inflation reaches this point, the entire nation is in danger.

Four Penalties of Inflation

   What happens to a nation when it becomes locked in an inflationary spiral? Answers Dr. Pierre A. Rinfret (whom we quoted earlier), "It is a country without savings to speak of. That means that everything is dedicated to the present and nothing to the future. Live today, because tomorrow it will cost more."
   "If there are little or no savings," explains Dr. Rinfret, "there are no housing loans, and consequently little housing construction."
   The first penalty of inflation therefore is a drop in housing construction.
   The second penalty that inflation brings is the destruction of long-term lending for business purposes. The economy becomes unable to make the investments that ultimately maintain its position in the industrial world.
   The third major penalty of inflation is the fostering and abetting of dishonesty. "It fosters, condones, necessitates and rewards dishonesty," says Dr. Rinfret. "Faced with inflation, people grasp for ways to avoid the deterioration in their purchasing power."
   We would add that inflation produces a fourth result: It causes a nation to lose out in world trade. Here, for example, are two instances of the effect inflation is having on U.S. foreign trade:
   " 'Rampant inflation' in the United States is making it increasingly difficult for Caterpillar Tractor Co. and other domestic companies to sell their products abroad.
   "Caterpillar President William H. Franklin said here today that his company, which is the nation's largest exporter of machinery, is finding it increasingly difficult to compete, say, in Brazil, with Italy's Fiat, which enjoys lower labor and material costs.
   "In 1969, construction equipment prices rose some 5 percent in the United States" (Donald E.L. Johnson, Journal of Commerce, Feb. 19, 1969).
   Japan's largest stock brokerage house, Homura, recently told Japanese businessmen the outlook is rosy for Japanese exports. Because of continuing inflation, it said, "The United States is losing its ability to compete in the world market."

The Borrowing Binge

   The curse of inflation has other ugly ramifications.
   For example, even though 16 percent of America's industrial capacity is standing idle, businessmen have been expanding their factories at a record rate. Why? In order to buy machines and materials now to beat expected price boosts and economize on scarce and increasingly more costly labor.
   Prime interest rates have been raised to an unprecedented 8.5 percent and still the borrowing continues.
   What galls the government economists most in attempts to control inflation is that they completely misjudged consumers and businessmen. Both cashed in on present prosperity by buying now and paying later whatever the interest cost might be. Instead of high interest rates slowing down borrowing and buying, consumers find ways around this problem.
   Americans are reducing the amount going into savings accounts. They are cashing savings bonds, and borrowing on insurance policies. Households, hard-pressed in the midst of plenty, find this the quickest means to offset swiftly rising prices and taxes.
   Personal savings as a percent of disposable income dropped from 7.1 percent a year ago to 6.1 percent in the first three months of 1969. Savings and loan institutions had withdrawals in April of $520 million. Mutual savings banks lost deposits of $200 million in the same month.
   High interest rates charged by banks and other lenders drive firms and individuals into borrowing on life insurance. Loans on policies have spurted so far this year from $400 million to $12 billion. The money is going into down payments on homes, cars and into business operations. The reason: Insurance companies generally are obligated to lend the legal loan value of a policy to the holder at specified rate ceilings. These rates are usually well below the best bank rates.
   Insurance company officials are also concerned about the tendency of policyholders to let a policy lapse after they have borrowed on it rather than repay the loan!
   And at the same time, government statistics reveal a swift growth of consumer debt. At the end of this year's first quarter, consumer debt outstanding totaled $112 billion. This represents an 11 percent increase from a year ago. Commented the Wall Street Journal: "Never before have so many Americans owed so much to so many."
   Morris Rabinowitz, president of Financial Counselors in San Francisco, estimates that a good third of American families that use installment credit are on the brink of serious financial trouble. Since 65 percent of U.S. families use installment credit, that means one-fifth of all U.S. families are in financial hot water!
   Personal bankruptcies once rare now outnumber corporate bankruptcies ten to one in the U.S.
   All this is what happens when people become obsessed by "inflationary psychology" the neat little phrase coined to explain the phenomenon of people borrowing to buy things they don't need now to escape higher prices later. This only feeds more money into an overheated economy, and drives prices up still higher.
   Inflationary psychology has a strong grip on American minds. The job of bringing inflation under control is therefore proving, said Secretary of the Treasury David M. Kennedy, to be "much more difficult" than the Nixon administration expected.

The Price of Deflation

   The longer inflation spirals upward the more drastic the medicine required to cure it.
   The United States has experienced an unprecedented economic expansion fueled largely by inflation for 101 consecutive months.
   Economic planners, proceeding from unproven "New Economics" theories have intervened at key points during this 8-year period to keep the boom going. The economy simply has not been permitted so seek its own level, with occasional ups and downs.
   The "patient" has been forced to grow FAT but not healthy!
   The nation has simply gotten accustomed to continued "growth." Americans, as a whole, have become so spoiled, that the merest hint of a business slowdown yes, even a mild recession, which would be for the nation's good right now causes fear and anxiety.
   Despite inflation, despite growing debt, the average consumer is spending more than ever before. The reason is greed!
   Consumers continue to spend because they don't want to take any back-steps in the standard of living.
   At the very time Americans should be tightening their belts, halting unnecessary spending, salting away more money in savings accounts we witness the tragic opposite.
   Belt-tightening at all levels of government national, state and local is not in the offing, either. Not with the ever-increasing burdens of defense and welfare and social programs.
   We also see a severe crisis of confidence dividing government and public. Neither seems to believe the other can do anything to stem inflation.
   The government, so far, has been reluctant to take the drastic steps that may eventually be necessary to halt the spiral.
   Officials are well aware of the fact that an economic slowdown means a rise in the unemployment rate a political "hot potato."
   The people, on the other hand, apparently have lost confidence in their elected officials to solve the dilemma. Hence the "every man for himself" attitude. "Why save? The money will only depreciate. Why tighten my belt? Nobody else will!" So goes the unfortunate reasoning.

Human Nature on Display

   Self-centered human nature goes into full play in a runaway economy.
   A couple of examples will suffice.
   In the middle of May, George Romney, U.S. Secretary of Housing and Urban Development had an experience he probably won't forget for a long time.
   Addressing a building trades union conference in Washington, Romney was first cheered by the 3,000 delegates when he reviewed the recent fat wage settlements in the construction industry.
   But when he urged building workers to increase their productivity he was greeted with a loud chorus of boos and catcalls. And when he advised the unionists to end other restrictive practices that have contributed to an astronomical rise in building costs more boos, more jeers.
   Do you recall the story of a few British secretaries who over a year ago volunteered an extra unpaid hour a day on their jobs for the good of their country?
   Britain had at that time recently experienced the devaluation of the pound.
   A few thousand patriotic Britons applauded. But the overwhelming majority reaction, including that of most trade union officials, was one of contempt, disdain or disinterest!
   What has happened to our peoples?

Belt Tightening That Worked

   Today the West German mark is regarded as the world's most solid currency. According to New York's Journal of Commerce, "The Germans... are pretty close to ruling the roost in international finance."
   But it wouldn't be this way if Bonn hadn't acted quickly on an internal financial crisis that began four years ago.
   In 1965, the West German "economic miracle" was beginning to get out of hand. A serious inflationary spiral had set in roughly in the same scope as affecting the United States today.
   Wages were soaring 10 percent a year, twice as fast as worker productivity. Prices were rising at a rate of 4 to 5 percent.
   The German Federal Government was forced to step in. It curbed credit, made money more expensive much as Washington is trying to do now. Government spending was also curtailed.
   But the big key was the attitude of the German citizens themselves! They stopped buying so much, forcing business to slow down production and expansion.
   Labor unions, moreover, cooperated with the government program. They voluntarily scaled down all wage-increase requests.
   Result? A minor but necessary business slowdown in 1967. Unemployment was held within tolerable limits.
   West Germany has long since rebounded from the 1967 slump. It has reached its greatest economic heights since then. Factories are humming, profits soaring another 4 to 5 billion dollar trade surplus is expected this year and jobs are plentiful, with about five jobs available for every German wanting work.
   It pays to fight inflation! How Bad Can Inflation Get?
   It's a shame that Americans and Britons do not have the morbid fear of inflation that older Germans have.
   In the great German inflation after defeat in World War I the circulation of paper Marks reached astronomical figures. By the end of 1923 such an ordinary matter as the sending of a local letter cost 100,000,000,000 marks in postage!
   It got so bad in parts of Germany that some laborers were paid twice a day and given time off from work to shop all in order to keep abreast of streaking prices.
   Inflation can get a lot worse!

The Solution for YOU

   We are not so naive to believe that an article like this is going to change the course of a whole nation.
   But our readers need to be apprised of the facts. There is no need for you to obey the "sheep instinct" and drift toward financial ruin. Why follow the crowd by drawing down your savings, going head-over-heels into debt, buying things you don't need?
   Now, more than ever, is the time to be different!
   In all likelihood, many reading this article are already suffering from financial distress. After all, "the average American family is about three months from bankruptcy." (Vance Packard, in his book, The Waste Makers)
   What you need at this time is to understand basic principles of living that the average person has no comprehension of and for which he is paying a severe penalty. These generally ignored but nevertheless fundamental laws are found probably on your own bookshelf but you perhaps never took notice of them.
   The booklet The Seven Laws Of Success explains these laws explains what success really is. Few people know. Success is infinitely more than a swimming pool, double ovens, three cars in the garage mere acquisition of material goods.
   Why don't you give it a try and find out what abundant living can be like. There is absolutely no reason for inflation to leave you in financial ruin.

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Plain Truth MagazineAugust 1969Vol XXXIV, No.8