I know this is supposed to be a gold blog, but I am going to write once more about a broader economic issue. I promise that the next post will not only be about gold, but will lay the groundwork for describing a conspiracy against gold by the evil Central Banks. (Boo! Hiss!)

First, though, a little more about inflation and, this time, interest rates. Everyone knows, of course, about interest rates. Sometimes they seem low (if you are a saver) or high (if you are a borrower). Either way, it is a number that represents how much you pay or are paid for the use of money. However few people outside the world of economics are familiar with the term “real interest rate.”

It is easily defined. The “real interest rate” is any interest rate minus the inflation rate. The important part is choosing the correct number for the inflation rate. My post about the Consumer Price Index argued that what the government calls the inflation rate is not a scientific fact, like the atomic weight of iron, but rather a politically motivated manipulation. In other words, a lie.

Referring again to my post about the CPI, I cited the work of economist John Williams (shadowstats.com) who contends that if the Consumer Price Index were calculated now, as it was traditionally, the correct inflation rate would be 10%. There are those would argue with that, but for the sake of this discussion let’s take Williams to be correct (since he is).

Going back to the definition of “real interest rate,” and assuming, for example, that a bank CD would now pay you let’s say 4.5%, the the real interest rate on your money would be negative 5.5% (some would would express it as “minus 5.5%”) Therefore, if you bought the CD, your money would lose 5.5% of its value over the course of a year.

There has been a great deal in the press about America’s “low savings rate.” In fact, it is at its lowest level since the depths of the Great Depression when people literally had no money to save. Commentators have called Americans selfish, shortsighted and dedicated to near term pleasures rather than to saving for their future and their childrens’ future.

To me the low savings rate proves something very different. It shows that Americans aren’t stupid. Thanks to the Fed and its out-of-control money creation machine, it is foolish to save. The smarter course is to either spend the money before it is worth even less, or try to put it into something, like real estate, which seems to be increasing in value faster than even John Williams’ figure for inflation. And, similarly, to borrow your butt off in the expectation that you will able to pay the loan back with cheaper money than you borrowed.

I could proceed forward from this point and expound at great length about the current state of the real estate market and related credit market issues. But I promised to get back to gold and the Central Banks, so that is what will be coming next.

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