In the world of investing, there is a well-known concept referred to as the Rule of 72. It states that because of compound interest, 72 divided by your rate of return will always yield the number of years necessary to double your initial investment. The simplest math to do it with would be that it takes 10 years to double your investment at a 7.2% interest rate (72 / 7.2 = 10). However, below is an excel sheet drawing out the rule with rates of one through ten percent.
Because inflation detracts from your return, the most accurate way to find how often the real value of your investment doubles is to actually measure 72 divided by the rate of return minus the inflation rate. Forty years ago, to achieve a fairly large real rate was fairly feasible even in the face of what was considered fairly high inflation. In 1982, exactly forty years ago, the average CD was a little over 14%. So even though inflation was over 6%, all it took to earn an 8% real return was a simple short-term CD. At that difference of about 8%, it would only take 9 years to double your money!
Times have changed. Inflation today is right about 8.6%. However, artificial interest rates being held low by the federal reserve has led to the average CD rate sitting below one percent. As a result, the real return is between negative seven and eight percent! This means that it would take between nine and ten years, not for your money to double, but rather it would take less than a decade for your investment to be cut in half!
Even this is only telling part of the story. This is because between 1982 and today, we’ve also changed the way in which inflation was measured. By the old metric, inflation would actually be sitting at about seventeen percent. Plugging that into the Rule of 72 would give us 72 / (0.73 – 17), which tells us that it will take under five years for your investment to be cut in half!
Realistically speaking, it’d be all but impossible to maintain this 8.6% (or 17% by the old metric) inflation for ten years or even five years. Such prolonged inflation would either have to snap into a recession or snowball into hyperinflation as Americans gave up all faith in the dollar. However, it is an important lesson in just how impactful inflation really is. It’s not always the most exciting, front-page topic, but inflation is so much worse than the brutal gas and home prices we are dealing with – though those are already crippling. It is on a high speed track to crippling and most literally halving the real return of your savings.
No matter what we’re facing, inflation like this is never worth it. As Ludwig von Mises has said:
No emergency can justify a return to inflation. Inflation can provide neither the weapons a nation needs to defend its independence nor the capital goods required for any project. It does not cure unsatisfactory conditions. It merely helps the rulers whose policies brought about the catastrophe to exculpate themselves.
Are you fed up? Are you worried that America in rapidly sliding into a neo-Marxist state by the radical left in control of Washington with historically narrow majorities in the U.S. House and Senate and an Executive controlled by unnamed far leftists in place of a clinically incompetent President Biden? They are desperate to keep power and complete their radical progressive agenda that will change America and our liberty forever.
Americans just witnessed the passage of the Inflation Reduction Act of 2022 without one Republican vote in the U.S. Senate and House (just as Obamacare was passed in 2010). The IRS will be hiring 87,000 new agents, many armed, to terrorize American taxpayers.
Americans witnessed the FBI raid at the Trump Mar-A-Lago home and property of President Trump, truly a first in all of American history. We know what that is about.
It is undeniable that the Democrat Party and the administrative state (the executive branches of the DOJ, FBI, IRS, et al) are clear and present dangers to our Republic and our liberty as they increasingly veer further away from the rule of law and the Constitution. What is the solution? At this critical juncture, there is only one action we can all take.
The only viable and timely solution at this critical point is to vote – yes, vote correctly and smartly to retake the U.S. House and Senate on November 8th and to prepare the way to retake the White House in two years. Vote and help everyone you know to vote. Please click the TAKE ACTION link below – we must vote correctly and in great numbers to be sure our votes are counted to diminish the potential for the left to rig and steal the midterms and the 2024 elections as they are clearly intending to do after their success in 2020.