Portugal in Crisis after 1 million say No to austerity

Lisbon protests: 'Politicians are thieves, give us back the hope' (Photo: Pedro Ribeiro Simoes)

Portugal in crisis after 1m say No to austerity


BRUSSELS - Portugal is facing a massive backlash against troika-approved austerity measures to raise social contributions for employees. Portuguese President Anibal Cavaco Silva is on Friday (21 September) to convene a rare meeting of the state council in a bid to defuse a political crisis linked to the controversial measure. 

Over 1 million people took to the streets of Portuguese cities on Saturday in protest at moves to boost social contributions from 11 percent to 18 percent for workers and to lower them from 25 percent to 18 percent for companies.The change would de facto slash one months' worth of salary a year for each and every employee. Employers are also to be given more leeway to fire people.


Trade unions, the Socialist opposition and the junior partner in the centre-right government coalition have all come out against the measure, part of a package of cuts agreed with the troika of international lenders in return for an extra year for Lisbon to meet its deficit targets."This measure completely ruins the political consensus that was behind the bailout programme," Ana Gomes, a Socialist Portuguese MEP told this website.

She blamed the government for tabling the moves, but also the troika for accepting them in the teeth of public feeling.The scale of the popular resistance came as a surprise, with fellow bailout country Greece normally the one in the headlines over anti-asuterity street protests."It is not the fault of the Portuguese, they have accepted everything so far. The troika wanted to show Portugal is a good pupil, compared to Greece, abiding by the book. But the problem is that the book is wrong. Austerity is killing the economy," Gomes aded.

In her view, Portugal should be given even more time to pay off its debt and the interest rate on its loans should be lower.Currently, small enterprises are paying 5-6 percent interest rate even though banks get the loans from the European Central Bank at one percent.If the stand-off continues, eurozone finance ministers meeting in Luxembourg on 8 October could in theory delay the payment of the next tranche of Portugal's €78 billion bailout.

"Protests and recent developments are a bit odd as they are in contrast to the latest troika decision to give Portugal an additional year to adjust," said Carsten Brzeski, an economist with ING Bank.
"Portugal is not the next Greece but the dire economic outlook won't make the required adjustment any easier. The latest developments show that the recent calm in the euro-crisis will not last forever and that eventually the destiny of the eurozone is in the hands of governments and voters," he noted.

Arab Spring - Arab Winter


By: Andrew_McKillop 

The so-called Arab Spring of 2011 has rapidly mutated into a dark and chilling winter scenario of spreading civil war, shia-sunnite conflict and other ethnic-based strife, and rapidly intensifying economic meltdown in the Arab and Muslim world. The latest manifestations include the Mahomet insult saga, supposedly opposing the progressive, lay-minded, open society West against entrenched religious-minded conservatism and fundamentalism in the Arab world, and the long-running mass bloodshed of the Syrian civil war.

"Why is the Arab world so easily offended?", ask  the headlines  in the western media, such as the article by Fouad Ajami, published by Washington Post, 21 September. This story, like others begins on the wrong foot by saying the basic driver, of "Arab Winter", is anti-American violence spreading across Muslim capitals, which include Jakarta, Karachi and Tehran, Bamako and Khartoum.




We can be sure that anti-Americanism is one driver of "Arab Winter", but not the only one. US so-called geostrategic initiatives, not only in the Arab and Muslim world but also in Asia, from Japan and China to Russia, the central southern Muslim republics of the ex-USSR, in former Warsaw pact countries of east Europe, and elsewhere could not have achieved such universal rejection and failure even if they had been specially designed to achieve rejection and failure. Something terrible occurred to US foreign policy, not only flowing from the usually naive, always aggressive speeches and policy statements of American war-prone "strategists" such as Dick Cheney, Paul Wolfowitz, Condoleezza Rice and other stalwart troublemakers of the George W Bush years.

ITS THE ECONOMY, STUPID

Although mostly kept in the background, the economic goals and levers of the always confused, always failed American attempts to exert "global leadership" were important. The defective and simplistic rationale behind this attempt is that like Marxism, Islam is a "market unfriendly" ideology, and being unfriendly to markets is akin to Terror. It can be rationally argued that the systematic support given by the US to Muslim fundamentalists fighting Russian troops during the December 1979-February 1989 Russian Afghan war was targeted at playing off one enermy of market fundamentalism against another, weakening the USSR's economy further and faster than its own mismanagement was already doing, and trigger Soviet economic collapse. Supporting arguments for this being the main US strategy, among a mix-and-mingle of goals including "humiliating the Russian bear" and obtaining revenge for US humiliation in Vietnam and Iran, include the hoped-for slowing of Russian gas pipeline development for creating gas import dependence among European consumers of Russian gas.


The supposed economic imperative of the US to stay on the right side of Saudi Arabia and other sunnite-ruled Arab petro-states, dictated by high oil prices and the Iranian revolution, which we can call a shia muslim fundamentalist revolution, were further supporting rationales for the USA's disastrous Afghan war strategy. Disastrous, that is, if we take Al Qaida seriously, today. For American political deciders and all US mainstream media, taking Al Qaida seriously remains a patriotic duty but recent events, plus any rational look at the Al Qaida sunna muslim fundamentalist story show that this paper tiger is as unthreatening and unserious as the supposed "Soviet threat" of the early 1980s.


In the 1980s, all that the USA had to do was await the internally and domestic driven collapse of the Soviet Union - but it preferred to support Muslim fundamentalists. The higher goal, of "liberating the USSR", was in fact treated by most American political deciders as impossible - after all the Soviets had placed their Sputnik in orbit before Uncle Sam, and their tank batallions were numerous and massed on the borders of eastern Europe. What would happen to the ex-USSR when it collapsed, and how its economic refugees would act, were in no way analyzed rationally: this was gung-ho fact-fleeing and rationality-adverse geopolitics!


THE OIL DRIVER

The oil driver of American Indiana Jones-style military adventure thinking in what American global mythology believes are lightly populated, backward and impulsive, mostly desert Arab and Muslim lands was given its most telling example in the run-up to the Iraq war of 2003. Through 2002, speeeches by George W. Bush's gang of gung-ho troublemakers are all-time gems, for example Dick Cheney's speeches laying down the law on the terms of reference for the planned attack on Iraq. At the time, the term "the Arab street" was born, with Iraq liberation unquestionably resulting in access to vast quantities of cheap, light, sweet crude and to scenes of joy in "the Arab street". Cheney often claimed that the streets of Basra and Baghdad were certain to "erupt in joy in the same way that throngs in Kabul greeted the Americans", in 2001, when Afghanistan was invaded, Soviet style.


As for oil, the extremes of American apple pie thinking during the run-up to Iraq invasion on the spurious and lying basis of Saddam Hussein "possessing weapons of mass destruction", was shown by claims published by entities as supposedly serious as the American Petroleum Institute. These claims extended to inviting readers to believe that Hussein's palaces had large amounts of cheaply recoverable oil buried beneath them - light sweet crude galore.


By a fantastic irony and today in 2012, all of the USA's major oil and gas corporations, from Exxon Mobil down, need the highest-possible oil prices to offset their huge losses on radically developing shale gas resources in the US, and driving down gas prices by 85% from their peak in 2005-2006. In the 1990s, and even in the 2002 run up to the Iraq invasion, cheap oil was trumpeted by government-friendly media as the best and most important real spinoff from this "liberation war". As we know, the Iraq war did nothing to stop oil prices from rising, and US oil corporate access to Iraqi oil resources is in no way spectacular, today. When (rather than if) oil prices fall below about $75 per barrel, the corporate fortunes of the USA's Big Energy sector will become even more dire but this again concerns the "real world" and is therefore unrelated to the Indiana Jones crusade against The Bearded Ones.


ECONOMIC REFUGEES, FOOD AID AND CIVILIZATION

The US "geostrategic initiative" targeted at the Arab and Muslim world in all senses of the term, including killer drone attacks, the use of depleted uranium weapons, torture of prisoners, so-called "selective" assassination and other tricks was so confused as to be dysfunctional, even 10 years ago. Inciting and facilitating civil and inter-community wars, for example by playing on age old shia-sunna animosity, will certainly destabilize or even ruin the local economy. Economic refugees, following the war refugees are one sure and certain result.The need for economic refugees in a world of 7 billion population facing an epic slowdown of the global economy is more than difficult to defend - but the USA "leadership initiative" goes on creating them.


One totally unsurprising result is what the Fouad Ajami article contemptuously calls: "road rage (in the) thwarted Arab world – the congenital condition of a culture yet to take full responsibility for its self-inflicted wounds." Making the wounds deeper, then rubbing salt into them may be a traditional 19th century American snakeoil way of "healing", runnng alongside the Christian fundamentalist snakeoil always close to the surface of latter-day US politics, but spread over wide regions of the planet and huge population numbers, this is a lethal cocktail. Media treatment of current anti-American rage in the Arab and Muslim world dismisses such intellectual rambling, and tells average media consumers that there is an answer to "Why did a YouTube trailer ignite Muslim rage?", to which French media adds its own handfull of salt with the Charlie Hebdo public WC-quality wall drawings and captions.


Mass media treatment is simple to summarize: the turmoil in mostly poor countries with rapidly weakening economies is due to a few hypersensitive, anti-American Muslims doing irrational stuff like killing U.S. diplomats and torching their own public buildings as well as those of the US and the USA's running dog, pork eating, infidel allies. Insulting the Prophet is perhaps distasteful, the Pope and the Chief Rabbis of all major countries do not approve, but Freedom of Speech is regrettably paramount. Forgetting the economic spinoff, ignoring the economic results, western popular media has made a killing out of this blood-on-the-streets media opportunity, like any other.


The same media either does not know, or care that three-only Arab countries - Algeria, Egypt and Saudi Arabia - take about 65% of world total wheat exports, and totally depend on food imports. Their ability to withold oil exports to punish the Prophet-insulting West, is measurable in weeks rather than months.
Media fodder for average consumers of newsfodder restricts the "analysis" to one of Islamic intolerance of and incompatibility with the market values of latter-day democracy, further reinforcing the Bush-level idiocy of "Islam on a collision course with the West".


Much closer to reality, in fact, Islam is on a collision course with itself, and very recent events - such as the lack of interest by "the Arab street" in Prophet baiting - show tis process is at work. This of course has its own dangers, especially the possible or probable attempt by religious powerbrokers in the Arab and Muslim world to regain the iniative - by fomenting "designer atrocities" against Western targets and supposed symbols of Western infidel culture. For the economy of the Arab and Muslim world, already heavily impacted by street revolutions in  countries like Iraq, Egypt, Yemen, Bahrain, Tunisia, Libya, Morocco, Syria, Afghanistan, Mali, Niger, Pakistan and possible others including Indonesia, the outlook is for an already bad situation getting even worse.


Last week's violence reflects the deep anger and distrust of the U.S. across the Islamic world, to be sure, but it has also probably accelerated the separation of political revolt in the Arab and Muslim world, from traditional and conservative religious control of the masses in these countries. The Arab Spring revolts, which at least at first were little-infiltrated by religious power and influence, could in their Arab Winter format become highly "modern style" political revolts - and civil wars. Whether US dreamers of the Cheney or Wolfowitz or Brzezinski mould ever dreamed of this is for the least unsure.


WHO BENEFITS?

US global leadership lunges and feints in the Arab and Muslim world have always been costly and counterproductive - for the USA. One sure loser is the USA, more precisely its taxpayers. Until now, that is last week, it was always easy to assemble a crowd of young protesters in the teeming cities of the Arab and Muslim world, using American embassies and consulates as magnets for the disgruntled. This western mass media-friendly "vision" of the primitive-minded Islamic masses is now possibly on its way into the dustbin of History.


The notorious, and notoriously trashy video film trashing the Prophet was able to be called a catalyst for angry street protests, with the underlying causes left blank. Decades, even a century of the most impeccably incompetent laisser-faire management of the economy in the Arab and Muslim world has created the tinder, ignited by sparks such as caricatures of the Prophet, but since Arab Spring of 2011 this is already superceded by widespread Arab street attack on out-to-lunch governing minorities. Much more serious, the US neocon "vision" of an unchanging Arab and Muslim world appears to be embedded in American minds. Again, the US is the loser.


The supposed ultimate beneficiary of US war spending, and war action in the Arab and Muslim world - Israel - has more than enough of its own domestic crises, and highly rational fears of what happens when the Arab street becomes the democratic majority in Israel's neighbour countries, and inherits a devastated economy. Israel's own distancing from the chaotic crisis-prone real world nature of US leadership attempts in the Arab and Muslim world are mirrored by the USA's own distancing from Israel's war-hungry current leaderships, called democratic but as crony corporate as in the US or Europe, making for certain but unpredictably timed change in this "sacred relationship".


One key example is the media presentation of all Israelis hungering for the destruction of Iran: the conceivable benefits to Israel from devastating Iran are at best a will-of-the-wisp and most Israelis fear Iran bombing, because of its certainly massive and negative, but unpredictable sequels. The longtime focus of local conflict, hinged on Israel denying Palestinian rights, has been completely upstaged by the emerging street Arab revolt against local tyrannies, starting with the Arab Spring countries but also including Saudi Arabia and the Gulf states, Jordan, Morocco, Algeria, Syria and even Pakistan.


Until even last week, the mass media and mass politics spin on the issue focused the received wisdom that the Arab and Muslim world has a grievances against the US, Europe and other non-Muslim countries and regions, due to their freedom of speech and religion, democracy, equal rights for women, support for Israel or simple jealousy concerning living standards and rational expectations of average people. This was bundled together as "War on Terror". For the moment, still trapped in "logic" dating from before the collapse of the Soviet Union, the only real beneficiaries of War on Terror -in the west -  are the military-industrial complex and the politicians favoured by an ersatz "clash of civilizations" but times are changing fast.


By Andrew McKillop

Fake Gold Bars appears in Manhattan

Fake Gold Bars

Fake gold bars turn up in Manhattan

Posted: Sep 19, 2012 7:11 AM Updated: Sep 19, 2012 7:13 AM
By TI-HUA CHANG, Fox 5 News Reporter
MYFOXNY.COM - 

In jewelry stores on 47th Street and Fifth Avenue the important trust between merchants has been violated. A 10-ounce gold bar costing nearly $18,000 turned out to be a counterfeit.

The bar was filled with tungsten, which weighs nearly the same as gold but costs just over a dollar an ounce.
Ibrahim Fadl bought the bar from a merchant who has sold him real gold before. But he heard counterfeit gold bars were going around, so he drilled into several of his gold bars worth $100,000 and saw gray tungsten -- not gold.


What makes so devious is a real gold bar is purchased with the serial numbers and papers, then it is hollowed out, the gold is sold, the tungsten is put in, then the bar is closed up. That is a sophisticated operation.


MTB, the Swiss manufacturer of the gold bars, said customers should only buy from a reputable merchant. The problem, he admits, is Ibrahim Fadl is a very reputable merchant.

Raymond Nessim, CEO Manfra, Tordell & Brookes, said he has reported the situation to the FBI and Secret Service.


The Secret Service, which deals with counterfeits, said it is investigating. In March, gold bars filled with tungsten showed up in England. With New York now hit, it may mean an international ring is involved.

Read more: http://www.myfoxny.com/story/19578206/fake-gold-bars-turn-up-in-manhattan#ixzz26u5bGtmA

EU faces 'lost generation' of almost 8 million young people

EU faces 'lost generation' of almost 8 million young people
07.09.12 @ 09:27
By Honor Mahony  EUobserver

BRUSSELS - The European Commission has indicated it is going to delve further into the employment, social and education policies of member states as it seeks to tackle the job crisis in the EU.
"We need to aim for an integrated EU policy approach and better coordination of employment and social policy at national and EU level," said commission president Jose Manuel Barroso at an employment conference in Brussels on Thursday (6 September).

"Not only employment and social policy, but also education policy," he continued, looking ahead to the next European Semester, the EU's recently-established yearly cycle of economic policy co-ordination.
The continued eurozone crisis, now in its third year, has seen the commission make recommendations in policy areas that, pre-crisis, were considered an absolute taboo.


Now it tells member states where to make changes to wage, employment and social policies.
"We have seen during this crisis that some countries have been performing better also because of the capacities of their education systems to respond to the demand for jobs and training," said Barroso, indicating that this is also going to come under commission scrutiny.


Barroso's words came as the OECD, a Paris-based club representing the world's most developed countries, downwardly revised this year's growth estimates for almost all euro countries.
"The recession is taking hold in the euro area," said OECD secretary general Angel Gurria at the same conference.He pointed out that for the EU to reach its 2020 goal of having 75 percent employment in the union, then 17 million jobs will have to be created.

The 'lost generation'


Gurria referred to a "potential lost generation" of 7.8 million young people who neither have a job nor are in education or training. He added that policy-makers are facing a new phenomenon of "structural long-term unemployment" where people are unemployed for over two years. And the longer they are unemployed, the harder it is to get a job when one is available.


Employment Commissioner Laszlo Andor called it a "jobs crisis." But with debt-ridden member states slashing spending, politicians have been struggling to get to grips with the problem. This is particularly so in bailed-out countries, which have been implementing harsh austerity measures in return for their borrowed money.

Greece, Ireland and Portugal have joblessness rates of 22.4 percent, 14.9 percent and 15.7 percent respectively. Spain - considering whether to ask for a bailout - has the highest eurozone rate at 25.1 percent.
Among the under-25s, the figures are much more extreme. In this age-group, more than one in five are unemployed in Ireland and Portugal, while 53 percent of young Spaniards and 55 percent of young Greeks do not have a job.


A very "innovative" and "stringent" public policy is needed to try and boost job levels, said Horst Reichenbach, in charge of overseeing Greece's reform programme, while Gurria pointed to the Danish policy of expanding and contracting government spending automatically to reflect ups and downs in the economic cycle.


Suggesting ways to raise money for investment, Ireland's enterprise minister Richard Bruton spoke of asset sales and "capitalising revenue streams" such as charging for water. "Even in a fiscally constrained economy there are measures that can be taken, " said Bruton.But he also suggested something that EU leaders have crucially not been able to manage since the onset of the crisis.

Boosting consumer spending and business investment would be much easier if there was an "environment of confidence" in the eurozone, he noted.

Why are we still struggling despite our Government's claim of improving Income

Ever wondered why we are still struggling even though our incomes have increased for the last few years? Our government’s propaganda machinery also had us believed that our lives had improved due to the increase in disposable income and hence everything is in good hands. By doing so, it will ensure that they will be re-elected in the next election. But why are we still hard pressed to meet ends need despite improving economic fundamentals such as higher economic growth rates, lower inflation, increasing GDP per capita, booming housing sector, improving external sector and so on. 

The following is Malaysia's GDP/capita chart from 2007-2011. It showed the GDP had been rising from $6905 in 2007 to $9656 in 2011 despite a slowdown to $6902 in 2009 due to the Global Financial Crisis.



Source : World bank

Everything seems to be falling into places and our standard of living should next be elevated to a new sustainable level. Why is this not happening?

What are the causes?

In his daily life, an individual is faced with problems in compromising his choices between his ‘needs and wants’. There are certain basic needs that you have to satisfy in order to survive such as food, lodging, transport and etc.
Due to your limited resources (income), you had to carefully allocate it so as to maximize your final objective within your budget. Unfortunately, however well you plan and budget your income, you soon realized that an increase in income actually causes more difficulty for you in meeting your budgets. In other words you may look better off outwardly but in actuality you are struggling to meet your monthly bills. Why is this so? The main reason is due to inflation.

Who is responsible for Inflation?

Who is responsible for all the inflation in the economy? The answer is the Government and how can it manage to do that? There are three ways the Government can inflate the economy.

1. By printing more money or Quantitative Easing as it is known without any backing of real money like gold. It is merely turning on the Printing Press and print or in other words COUNTERFEITING.  To illustrate how would an increased in the money supply causes inflation, we shall use the following example hypothetical economy.

Total Money supply is $100

There are only 2 products in the economy - a chicken and a duck.

Each of them are priced at $50 each

What will happen when the Money Supply is doubled to $200? Although the Money Supply is doubled but the supply of goods remains the same – one chicken and one duck. Since there are more money to spend the people will eventually bid up the prices for the chicken and duck in order to obtain what they want. In the end the price will have to go up until an equilibrium is reached between rise in price and the Money Supply.

2. The second method is through the Banks. Since the banking sector operates on the basis of Fractional Reserve Banking and by increasing the amount of funds the bank can lend out, it greatly help increase the Money Supply in the economy. Banks are required to reserve a certain percentage (normally 3-10%) of their deposits in order to remain solvent, maintain investor confidence and also act as an insurance against a ‘bank run’. This reserve is known as the Statutory Reserve Ratio (SRR) and Central Banks can either increase or reduce this percentage so as to manage the Money Supply in the economy. An increase in the ratio means Central Banks are moping up excess liquidity and is aiming for a ‘tight money’ regime  in the economy and vice versa.

Say for example the bank receive a $100 deposit, it can lend out $90 after deducting $10 for the SRR. Then when the borrower of the $90 writes a cheque to somebody who will later deposit it back into the bank. When the bank receives the $90, it can then lend out 90% of it which is $81 and this process will go on until finally it will reach $1000 or ($100+$90+$81+….. = $1000). By the time it reaches $1000, the bank had already made more than 40 different loans from the original $100. So the leverage in this case is 1 to 10 ($100 to $1000) and can be best shown in the table below.

Number	Amount	Less 10%
1	100	90
2	90	81
3	81	72.9
4	72.9	65.61
5	65.61	59.04
6	59.04	53.14
7	53.14	47.83
8	47.83	43.04
9	43.04	38.74
10	38.74	34.87

What will happen if the SRR is reduced to 5%? Again the bank when receive $100 will lend out $95 and the $95 will again make its way back to the bank and the process will go on until it reach $2000. The process can be shown in the table below.

Number	Amount	less 5%
1	100	95
2	80	90.25
3	64	85.73
4	51.2	81.45
5	40.96	77.37
6	32.76	73.5
7	26.21	69.82
8	20.97	66.33
9	16.77	63
10	13.42	59.86

By the time it reaches $2000, the bank had already made more than 100 different loans from the original $100. So the leverage in this case is 1 to 20 ($100 to $2000). So in conclusion, by reducing the SRR from 10% to 5%, central banks will be able to increase the Money Supply in the economy by 100%.

3. The third method is through the government’s Open Market Operations of securities such as bonds. When the government made a purchase of bonds or also known as ‘open market purchase’ it will increase the money supply in the economy. How it works?  When the Government purchases a $100 bond from a bank then it will need to issue a cheque for the purchase. The bank in return will either have to deposit it into its account with the Central Bank or cash in for currency which will be stored in its vault.  The end result is the Central Bank will end up with $100 more in bonds and less $100 in reserve while the bank will end up with an extra $100 in reserves and less $100 in bonds. Hence there will be an increase of $100 in the Money Supply.

An ‘open market sale’ of bonds will have a reverse effect and it will cause a contraction of $100 in the Money Supply. Such operation of buying and selling of securities by the Central Bank is similar to the job of a floodgate controller in a dam. By releasing or closing the gates, it can then manage the level of water in the dam.   

Coming back to our main point on why we are worse off despite our increased disposable income throughout the years. We present to you another hypothetical case study. Our case study is based on the following assumptions.

1. An individual with an income of $1000
2. No other source of income
3. He has a basic set of needs and wants

The following table describes his basic needs and wants.

Table 1 - His Monthly Budget on Basic Needs

No.	Description	($)
1	Food	150
2	Housing	200
3	Clothing	80
4	Education	100
5	Transportation	130
6	Medical	70
7	Entertainment	90
8	Insurance	100
9	Savings	80
	TOTAL $	1000

Table 2 - His other wants (Gratification)

No.	Description	($)
1	Super Bike	150
2	Swimming Pool	100
3	A new MPV	120
4	A bigger House	180
5	A dream holiday	100

As can be seen from the above table, there are certain basic needs that must be satisfied in order to continue living. He family need food to survive, clothing, education for children, transport to work, a house to live in and etc. After deducting these basic needs he is left with $80 for savings for the future.

You notice that apart from the needs he also has a list of wants which include a super bike, swimming pool, a new MPV and etc. Due to the budget constraint of being left with only $80 after all the expenses he cannot afford to have any of the other things that he wants. One way is to sacrifice some of the basic necessities in order to get one of the things that he love to have but he is unwilling.

What happen if he had a pay rise?

Then it will be a different story. Due to the Government’s pump priming and its inflationary effect on the economy, it causes an ‘appearance of a boom in the economy’. Bosses thinks that the economy is reaching a new plateau and orders are coming in, he decided to hire more workers and also giving a pay rise to existing workers. Say he got a pay rise of $100 from his boss. Assuming that this individual neglects the effects on inflation and he is overjoyed by the pay rise and soon went to purchase a Pool with a monthly commitment of $100. In other words he is back to square one and only able to save $80 a month.

What he failed to foresee is the effects of inflation through an increased in the paper money supply brought about by the government that is about to begin. He will realize that after a few months it will cost him more than the increase of $100 per month to maintain his present lifestyle. In other words his pay rise had been completely absorbed by inflation. He had to pay more for his basic needs than what he is paying now.

As a result of inflation, his cost of living had indeed gone up. The table below shows his new cost of living as a result of inflation.

Table 3 – Inflation adjusted Cost totaled $1100

No.	Description	($)
1	Food	165
2	Housing	220
3	Clothing	90
4	Education	120
5	Transportation	150
6	Medical	100
7	Entertainment	100
8	Insurance	120
9	Savings	35

Reduced standard of living

The above table shows that he may just made it through his monthly budget with a savings of $35 a month. However there is a little problem because he had earlier bought a Pool with a monthly installment of $100. How is he going to pay for this? There are two ways for him to get around this problem.

1. Take out any of the items listed from 1 – 8 in the above table.
2. Reduce the expenditure on the items above

Needless to say he will opt for choice number two where he will reduce the expenses in some of the items. After some consideration he decided to change his lifestyle to the following.

Table 4 – Adjusted lifestyle with pool

No.	Description	Old  ($)	New ($)
1	Food	165	150
2	Housing	220	220
3	Clothing	90	80
4	Education	120	120
5	Transportation	150	150
6	Medical	100	90
7	Entertainment	100	80
8	Insurance	120	100
9	Swimming Pool		100
10	Savings	35	10
	TOTAL $	1100	1100

When he is faced with limited resources he had to make a choice on which of his basic needs that had to be trimmed down in order to absorb the expenses of the pool. For as long as he had to pay for the monthly installment of the pool he had to scale down his spending on some of the things he had taken for granted. From the above table after his revised budget, his monthly expenses on food, clothing, medical expenses, entertainment and also his monthly savings have been reduced.

Deceived into thinking of better off

What can be conclude from the above is that although the amount of things he is entitled is more than before (10 items inclusion of the pool) but the monetary distribution of his spending had been altered due to the effects of inflation. Had he know the effects on inflation before hand then he would not have bought the swimming pool. He had a choice of getting rid of the pool so as to maintain his former lifestyle but he didn’t. Now his life is less enjoyable because of the reduce budget on the few things that he earlier enjoyed. He thinks that he is better off because he was deceived into thinking he now have more things in life. In actuality has his life improved due to inflation?