We look forward to the Van Mueller newsletter every month. It's chock-full of sound bites, sales tips, and eye-opening statistics. Here are our favorite parts of the August 2021 edition. We're sharing the full introduction, and 2 of the 7 monthly sales ideas. If you like what you read, we encourage you to click here and become a subscriber.
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August 2021 – 7 Ideas and Views Newsletter by Van Mueller
What is inflation? Isn’t it a very complex concept? Doesn’t the government intend for it to be complex, so that the American people don’t understand that they are being taxed, again, without it being called a tax? Isn’t it a way for the government to tax the poor, middle class and the upper middle class without those groups even realizing what is happening to them? Isn’t it a way for our government to add additional tax revenue from the wealthy? Did you notice I didn’t say super-rich? Most of the super-rich do not pay income taxes. They have planners who put strategies in place to offset the damage caused by inflation and yes, even take advantage of inflation. Shouldn’t our customers be made aware that the same strategies are available to them?/p>
So, in its simplest terms, what is inflation? The simplest answer is that it is the lost purchasing power of our money! We will discover later in this month’s newsletter that it is much more complex than that. However, our customers do not desire complexity from us. They desire simplicity. They want to understand exactly what is happening to their money.
Our customers do not desire complexity from us. They desire simplicity. They want to understand exactly what is happening to their money.
Here is an example of the lost purchasing power of our money that is relevant to many of the customers we talk with.
Healthview Services is an organization that reviews Social Security and Medicare and reports on the effectiveness of those programs. They recently reported that if you were receiving $2,000 per month in Social Security benefits in the year 2000, that in 2020 you would now require $2,800 per month to buy the same amount of goods and services. There are two important points to share. First, that increase was during a low inflation period. It even included a deflationary period in 2007 and 2008. Second, the information did not include the massive inflation increase that we are seeing in 2021. How does the dictionary define inflation? In economics, inflation (or less frequently, price inflation) is a general rise in the price level of an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the PURCHASING POWER per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. The opposite of inflation is deflation, a sustained decrease in the general price level of goods and service. The common measure of inflation is the inflation rate, the annualized percentage change in a general price index, usually the consumer price index, CPI, over time.
There are other indices that are used widely as measurements.
1. Producer Price Indices – This is an increase in costs at the producer level rather than the consumer level.
2. Commodity Price Indices – This measures a basket of commodities.
3. Core Price Indices – Food and oil prices can change quickly. Therefore, most statistical agencies also report a measure of “core inflation.” That removes volatile expenditures like food and oil from a broader index like the consumer price index. Many times, the inflation rate we are reported excludes spending on food, oil and even home purchases. It is dramatically understated. Why? Because the government doesn’t want most of America to realize that their standard of living is being reduced. That’s why people in the know call inflation a “stealth tax.”
The government doesn’t want most of America to realize that their standard of living is being reduced. That’s why people in the know call inflation a “stealth tax.”
4. GDP Deflator – This measures all the prices for goods and services against our Gross Domestic Product (GDP). This is a measurement of all the goods and services produced by Americans.
5. Regional Inflation – Prices are very different in different regions of our country. Costs of things could vary dramatically if measured by the north versus the south or the east versus the west or the coasts versus inland United States.
6. Asset Price Inflation – This is a dramatic increase in the price of financial assets such as stocks, bonds and real estate. There are three major sources of inflation.
1. Demand-Pull – When demand for goods or services exceeds production capacity. When people want to buy Giannis Antetokounmpo sneakers and they can’t be produced fast enough, the price increases.
2. Cost-Push – When production costs increase prices. If the price of helium increases for special occasion balloons, that will increase the price for the balloons.
3. Built-In – When prices rise, wages rise also in order to maintain living costs. If wages rise, prices will increase. This has been under control for a while. This reason for inflation is heating up again.
In order to understand the impact of inflation in the future we must look at inflation in the past. Let’s look at the last time we had excessive inflation. From 1975 to 1990 we had very aggressive inflation in our country and the world for that matter. Do you know that in the 46 years since 1975 you now need $5,050.11 today to buy the same amount of goods and services that $1,000.00 bought in 1975. That means your money only buys 19.80 percent of what it could buy in 1975. You lost 80 percent of your purchasing power. The average inflation rate over those 46 years is 3.58 percent. That means you need to double your income every 20 years in order to maintain the purchasing power of your money when you began. Even at only 3.58 percent average inflation retirees would need almost a double and another half of a double increase during their life expectancy to maintain their purchasing power if they retired at age 65 and lived to age 95.
You need to double your income every 20 years in order to maintain the purchasing power of your money when you began.
What happens to the quality of your retirement if you retired in 1975 when the rate of inflation was 9.13 percent and lived through bad inflation like those retirees had to until 1990? What happens to your standard of living?
Here are the rates of inflation from 1975 to 1990.
1975: 9.13 Percent
1976: 5.76 Percent
1977: 6.50 Percent
1978: 7.59 Percent
1979: 11.35 Percent
1980: 13.50 Percent
1981: 10.32 Percent
1982: 6.16 Percent
1983: 3.21 Percent
1984: 4.32 Percent
1985: 3.56 Percent
1986: 1.86 Percent
1987: 3.65 Percent
1988: 4.14 Percent
1989: 4.82 Percent
1990: 5.40 Percent
Any inflation rate over 2 percent is considered unfavorable. Any inflation rate below 2 percent is also considered unfavorable for the economy. From 1991 to 2020 the inflation rate was in the 2 to 4 percent range. 2021 is the first time it has entered the 5 percent range at 5.05 percent. Simply stated, that means that in 2022 you will need $1,005 to buy the same amount of goods and services that you bought in the year 2021. A cup of coffee was $0.25 in 1970. In the year 2000 a cup of coffee had increased in price to $1.00. In 2019 it increased to $1.59. That’s not a Starbucks cup of coffee, that’s a regular cup of coffee. That is inflation.
So, what’s happening with inflation today? Are we creating 1975 to 1990 inflation right now? Let’s review a few things and see if we can figure out what our government is currently doing.
The Federal Reserve’s current Quantitative Easing programs created $120 billion per month to $1.4 trillion of newly printed money annually. Jerome Powell said they would reduce this amount in 2022 or 2023. That will probably not happen now. The Biden administration let it be known that President Biden will reappoint Jerome Powell as the Federal Reserve Chairman in 2022. The administration would not have reappointed Mr. Powell unless he agreed to continue President Biden’s strategy going strong into the November 2022 elections. That means no reduced quantitative easing or rate hikes or money tightening strategies for a while. So, if shutting down the economy causes a depression, they will print money. If the stock market crashes 30 or 40 percent, they will print money. If municipal bonds collapse because investors don’t believe our cities and states will be able to meet all their healthcare, pension and debt obligations, won’t they print more money? If our economy continues to struggle because the Delta variant of the COVID-19 virus causes state officials to partially or completely lock down their economies, what will the Federal Reserve do? Won’t they print more money? What if the economy doesn’t recover fast enough. What will the government do? Won’t they just print more money? They don’t really have ANY other alternatives. Don’t believe me yet? Please try to wrap your head around the next few sentences. Our government has printed so much money to offset the negative consequences of the COVID-19 lockdowns that if you add up all the money that our country has ever printed; over 40 percent of that money was printed in the year 2020. This won’t stop soon. There will be trillions for infrastructure, climate change and many other things. We are not allowing our economy to heal itself. We are artificially manipulating the economy to win elections or pursue short-term agendas that promote candidates or party’s rather than the longterm well-being of our country and our country’s economy.
Our government has printed so much money to offset the negative consequences of the COVID-19 lockdowns that if you add up all the money that our country has ever printed, over 40 percent of that money was printed in the year 2020.
All of this additional liquidity is causing problems globally. There is no place to hide. There used to be global alternatives, however, we sold the Kool-aid to the rest of the world. Since March 2020 central banks have printed more than $27 trillion in stimulus. That is approximately 30 percent of the GDP of the planet. There are no words to explain the eventual damage that will be done to the world’s economy.
Using your own common sense, you will also understand that the government continues to mislead on inflation. The Bureau of Labor Statistics shared that healthcare spending has increased only one percent in the last year. If you sell health insurance, you know that is ridiculous. The same Bureau of Labor Statistics reported the housing portion of inflation increased 2.6 percent in the last year. Housing prices have increased over 14 percent. They are currently rising at the fastest rate since the real estate bubble of 2007 and 2008. They are not counting the costs of housing or medical care or food costs or energy costs even remotely correctly. This is even more manipulation
Inflation creates dramatically unfair and dishonest behavior in the markets. If you were to use a wine maker as an example, let’s see what choices are required to be made if the Federal Reserve doubles or triples the money supply. If the wine maker is selling his wine for $22 per bottle, he is now confronted with a very difficult decision. Here are his choices: He can continue to sell his wine for $22 per bottle and lose 50 percent or more of his profit, or he can use cheaper ingredients and destroy the quality of his wine and continue to sell it for $22, thus maintaining his profit, or he can double the price to $44 per bottle. The issue with the third idea is that the wine maker will face competition pressures from other wine makers who don’t have as much pride in their product or integrity in the way they operate. Inflation puts financial pressure on individuals to be dishonest. They must weigh their moral integrity against their financial wellbeing. Average individuals gain no long-term benefits from excessive inflation. It is taxation without representation.
Inflation puts financial pressure on individuals to be dishonest. They must weigh their moral integrity against their financial wellbeing.
Inflation is a tax. It’s not an actual tax like a sales tax or income tax. It has nothing to do with tax revenue. There is no line for it on form 1040 that makes you pay two or three percent of your earnings because of inflation. There is no payment that must be made to account for the rising inflation rates. The inflation tax is unseen. The inflation tax is a “stealth tax.” That is why it is so complicated and difficult to plan for. The inflation tax is a forfeiture on the cash you hold as inflation increases. As inflation increases, cash becomes less valuable. In short, what you save today will be worth less tomorrow.
In a recent article in Think Tank Advisor, Dr. Michael Finke who is a professor of wealth management at the American College of Financial Services stated this:
“Unfortunately, if these retirees hope to live on income from these investments, they will feel the effects of asset inflation. Asset inflation should also affect the expected growth in portfolios of bonds and stocks. A 50/50 portfolio of 10-year U.S. Treasury bonds and the S&P 500 produces exactly 75% less income today than it did 10 years ago, in July 2011.
In other words, $1 million today will produce the same annual dividends and interest income from a balanced portfolio as $250,000 did for a retiree in 2011. Retirees who reach for yield by taking greater risk in credit markets are facing spreads between risky corporate high-yield bonds and Treasury bonds lower than they were before the pandemic, despite a likely tapering in bond buying by the Fed in the coming months.”
WOW! Americans have lost 75 percent of the dividend and interest income they were receiving in 2011. How do they make that up?
Americans have lost 75 percent of the dividend and interest income they were receiving in 2011.
One more thing: Become aware of the word “shrinkflation.” Instead of raising prices, companies are hiding those rising costs by shrinking the size of everyday products. As an example, General Mills shrank its family size cereal boxes from 19.3 to 18.1 ounces.
With rising labor costs and ingredient prices combined with increased demand and a shipping crisis, you can expect shrinkflation to expand exponentially in the future. Here are some additional examples of shrinkflation.
Clorox now includes 75 wipes per pack, down from 85, for the same price.
Frito-Lay just shrank their bags of Doritos from 9.75 ounces to 9.25 ounces. Both are currently for sale at Target for the same price.
Hershey’s cut its 18-ounce pack of dark chocolate kisses by almost two ounces.
Hefty’s mega pack went from 90 bags to 80 bags, at the same price.
A two-pack of Reese’s Peanut Butter Cups used to weigh 1.6 ounces. Now it’s just 1.5 ounces.
Tubs of Pringles are different weights depending on the flavor in the U.S., but at Walmart they all cost the same.
Tillamook deceased the size of its ice cream cartons from 56 ounces to 48 ounces. It said that it didn’t make the decision lightly, but that if it didn’t make its cartons smaller it would have had to hike up prices because of rising ingredient costs.
Some of Royal Canins’ cans of cat food now weigh 5.1 ounces, down from 5.9 ounces, but they still cost the same. Royal Canin, a subsidiary of Mars, said that it reduced some product sizes because of unprecedented demand for pet food during the pandemic.
Charmin toilet paper originally had 650 sheets per roll. It now only contains around half of that. Even its Mega Rolls and Super Mega Rolls don’t have as many sheets as the original. The sheets have reportedly gotten smaller as well.
Cadbury changed the shape of its famous Dairy Milk bars in 2013 and changed the weight of them too. The individual pieces now have round edges and contain nearly 10 percent less chocolate than before.
This information is why it is the greatest time ever to be an insurance and financial professional and it is without a doubt the greatest time ever to sell cash value life insurance.
This information is why it is the greatest time ever to be an insurance and financial professional and it is without a doubt the greatest time ever to sell cash value life insurance.
It is obvious that there are no products by themselves that can overcome the challenges of aggressive inflation. It is also obvious that only STRATEGIES must be used to not be hurt by inflation and actually take advantage of inflation. I know you are all thinking to yourselves, HOW? You already know how. I have been writing this newsletter for years with ideas to beat inflation. We are the only industry that can. Here are several bullet points to remember. We will go into more detail in the months ahead.
1. Never Lose Any Money!
2. Have access to your money that you didn’t lose to take advantage of opportunities when they present themselves.
3. Reduce or eliminate income tax liability
4. Use pennies to buy dollars. Use leverage to make money more effective and more efficient.
5. Have one dollar do the work of many dollars. My dollars benefit if you die too soon, live too long, become disabled, have a catastrophic illness, have a terminal illness, require long term care or wish to supplement your retirement income. All with the same dollar.
6. Finally, learn and use mortality and longevity credits to increase retirement income.
So, what do you think? Do you know more about inflation than you ever wanted to know? I hope not. This will be an important concern for every American going forward. Let’s help our customers be in control of that journey.
Let’s get started with this month’s sales ideas.
Idea #2: $140 Billion in Medical Debts
How will Americans pay all the medical debt they are accumulating? How much is it? This report says the medical debt owed by Americans is $140 billion and 18 percent is in collections. Here is the part that is just horrifying. This isn’t all the medical debt. This is only the medical debt sold to collection agencies. Lawsuits filed against patients to collect debt are not included. Medical bills paid with credit cards are not included. Patients with long term payment plans are not included. Are you ready for the punchline? None of this includes data during the coronavirus pandemic which is not available yet. Do you think that will be higher or lower in the future?
Be creative. Think about life insurance on grandma or grandpa to pay off some of the medical debt for pennies on the dollar. Americans have a difficult road ahead of them with the increasing cost of healthcare.
Title: A sick feeling: $140B in debts
https://www.pressreader.com/ (Post Tribune, July 23, 2021)
https://www.pressreader.com/usa/post-tribune/20210723/281698322772232
Idea #5: How to Help Ourselves and Our Customers with Aging Parents
It is very difficult for families to adjust when parents become more frail and their personalities change because of dementia or Alzheimer’s issues. Many parents are not forthcoming about their finances, making it difficult for children to be of help with things such as paying bills or making medical decisions for the parents.
Both the parents and the children have a desire to deny any decline in the mental or physical capabilities of their parents. I wanted you to have these two articles as a starting point to being a resource for both parents and children as this occurrence becomes more prevalent in our society. This is great information.
Title: Furious at your parents for aging? You’re not alone.
https://www.usatoday.com/ (USA Today, July 8, 2021)
https://www.usatoday.com/story/life/health-wellness/2021/07/08/children-caregiving-aging-parents-feel-anger-stress-frustration/7901360002/
Title: The New Tools for Helping Aging Parents
https://www.wsj.com/ (The Wall Street Journal, July 8, 2021)
https://www.wsj.com/articles/the-new-tools-for-helping-aging-parents-11625749608
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