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by Fred Cederholm
Inflation has it roots in the excessive liquidity afforded by a US dollar money supply run amok, enhanced by debt-financed consumption when the nominal interest rates are below “the rate of inflation.”
I’ve been thinking about inflation. Actually I’ve been thinking about definitions, indexes, housing, real estate taxes, education, and energy. Inflation is the situation when the prices of things increase - where you end up paying more for the same goods/services; or the price appears to stay the same, but you end up getting less in return. It is commonly defined as “too many dollars chasing too few goods.” Traditionally... it is broken down two ways – cost-push inflation: when driven from the sellers’ side, or demand-pull inflation: when driven from the buyers’ perspective. In both cases, it has it roots in the excessive liquidity afforded by a US dollar money supply run amok, enhanced by debt-financed consumption when the nominal interest rates are below “the rate of inflation.”

You see, the subject of inflation in the news as been rearing its ugly head on a number of fronts – both domestically and internationally. Wall Street and Main Street have finally come to the realization that current economic “truths” have precluded any interest rate cuts on the horizon – if anything, interest rates will be pushed upward. While the US FED has sat tight on rates, central banks elsewhere around the globe have been raising their rates. Inflation is a global problem with many economies (that is, inflation rates) heating up to a point where red flags/sirens abound. The magic US benchmark ceiling for inflation is supposedly just under 3%. If you believe that our domestic price increases have been running below that so-called magic number, dream on. This deflated rate of inflation exists only because so much of what a household really consumes/ buys is conveniently excluded from the core indexes.

How can most housing costs, property tax costs, education costs, insurance costs, food costs, or energy costs be excluded as factors in the inflation computations?

The reported rate of inflation has been intentionally deflated by excluding so much of what households really consume/buy from the core indexes.
Obscene levels of liquidity and cheap money (arbitrarily low interest rates) have fueled many bubbles. For the last ten years, we have witnessed a housing boom unseen in our nation’s history. As prices (or at least expenditures on housing) escalated, the bubble fed on itself. This growth went way beyond the normal needs for family dwellings, as housing came to be looked upon as an investment/speculation and the paper appreciation of The family home became a cash cow to be milked via equity loans to fund expenditures of all kinds. Between 30% to 40% of recent job growth/ expansion has been attributable to the housing boom. The median house price did drop 1.8 percent to $212,300 in the first quarter of 2007, the lowest since 2005, when it was $199,700. This average price for a single-family home has recently fallen in 62 of 145 America’s metropolitan areas. However, this rise in house prices has also impacted the prices of existing and older homes as well, and thereby caused a significant rise in the annual real estate tax bill.

In the past four years the Real Estate taxes on my 100+-year-old property have increased well over $1,500. These taxes now account for over 25% of my total expenditures for the entire year. My various insurance premiums now account for over 15% of my expenditures, and every renewal brings more exclusions/exemptions from the coverage. Energy/utility costs now account for another 20% to 25% of yearly expenditures. My weekly food costs have risen 50% over the past four years for the same items and quantities. I don’t TH*NK my household is that much different from most others in this regard when I figure that my personal inflation rate has been running 12% to 15% per year – a far cry from the official BELOW 3% currently hawked by Uncle $ugar.

Last week I heard from my Alma Mater, the University of Illinois at Urbana, that Fall 2007 tuition would be raised to $204 per credit hour. My total tuition there in Fall 1968 was just over that for the entire two-semester course load of 32 credit hours—a cumulative increase of 3,200% over the 39-year-time period. The State of Illinois’ share in picking up the costs of elementary and secondary education costs has dropped from over 50% to less than 30%, so the schools must reply more on local property taxes to fund education, just as the state universities must rely more on tuition payments.

I also just heard from the gas company that if I wanted to go on the “budget plan,” it would cost me $129.00 a month – up $35 a month, or 37%, from the very same proposal of only just two months ago. What does that say about where energy costs are headed for the coming heating season? An annualized inflation rate of under 3%... who are they kidding?

I’m Fred Cederholm and I’ve been thinking. You should be thinking, too.

Copyright 2007 Questions, Inc. All rights reserved. Fred Cederholm is a CPA/CFE, a forensic accountant, and writer. He is a graduate of the University of Illinois (B.A., M.A. and M.A.S.). He can be reached at

Copyright © 2007 The Baltimore Chronicle. All rights reserved.

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This story was published on June 18, 2007.