Every person who tells you that if you had only been saving x dollars per month for retirement for the last y years does not account for inflation. 100 years ago, in 1907, the real GDP per capita was $5649 of year 2000 US dollars, but actual wages were much lower back then.

The original 1936 bay bridge connecting Oakland to San Fransisco only cost $79.5 million, but that amount is roughly 1 billion year 2000 US dollars.

The same misperception also occurs when you think about saving for retirement and carrying the numbers ahead a few decades. If you think $2,000 a month is enough to live on, what $2,000 are you thinking? $2,000 of today’s currency, or what that will be worth after inflation by the time you retire?

Saving money gets worse when central banks pour money into markets. Last Friday this report came out:

Worldwide, central banks have injected at least $326 billion (179 billion pounds) into their financial systems in the past 48 hours in an effort to prevent a global liquidity crunch that has its roots in the riskiest end of the U.S. mortgage market.

In its biggest single day of temporary open market operations in nearly six years, the U.S. Federal Reserve added $38 billion in reserves in three moves, the first coming before U.S. stock markets began trading.

This week the following numbers were released:

Over the past week, central banks around the world have injected hundreds of billions of dollars in cash into the financial system. The European Central Bank has added over $200 billion to its market, and the Fed added $62 billion to U.S. markets. The banks are attempting to ease tense conditions resulting from troubled lending markets.

Its hard to get anywhere saving money when the printers are running overtime.

zFacts published an article about the US National Debt vs GDP

In 1981 the gross national debt, compared to the nation’s annual income, reached its lowest point since 1931, 32.5%. It could have been paid off then more easily than at any time in the previous 50 years. Despite his claim to hate the debt, Reagan instituted unprecedented peacetime deficit spending. This is not partisan politics, this is straight off the White House web site.

Currently about half of the US government’s deficit comes in the form of borrowing from social security:

The gross (total) deficit is bigger because it takes into account that when the fed’s general fund (mostly military spending) borrows money from the Social Security Trust Fund, it will have to pay it back. Borrowing from Social Security is still borrowing. Deficit lite, which Bush is talking about, assumes there is no such obligation — that Social Security will not have to be paid back. So the more they borrow from Social Security the smaller is deficit lite.

President Bush has been lobbying to strengthen social security by privatizing it. Currently the social security system has a surpluss large enough that it helps the government cook the books by over $100 billion a year, but in about 15 years it will start costing the government more than it takes in. When it does that you can guarantee at least one of the following will happen

• sharply higher taxes
• sharply lower social security payouts
• inflation (and rising interest rates) due to greater borrowing and an increasing currency supply

If you are counting on social security paying part of your mortgage you might be taking a big risk. Due to accouning fraud, the government is hiding nearly a half million dollars of debt owed by each US houshold. A recent USA Today article pegged the number at $516,348 per household. What happens to home mortgage interest rates the day we default on that debt?