All government spending represents a tax. The inflation tax, while largely ignored, hurts middle-class and low-income Americans the most. Simply put, printing money to pay for federal spending dilutes the value of the dollar, which causes higher prices for goods and services. Inflation may be an indirect tax, but it is very real- the individuals who suffer most from cost of living increases certainly pay a “tax.”
Unfortunately no one in Washington, especially those who defend the poor and the middle class, cares about this subject. Instead, all we hear is that tax cuts for the rich are the source of every economic ill in the country. Anyone truly concerned about the middle class suffering from falling real wages, under-employment, a rising cost of living, and a decreasing standard of living should pay a lot more attention to monetary policy. Federal spending, deficits, and Federal Reserve mischief hurt the poor while transferring wealth to the already rich. This is the real problem, and raising taxes on those who produce wealth will only make conditions worse.
Borrowing money to cut the deficit is only marginally better than raising taxes. It may delay the pain for a while, but the cost of government eventually must be paid. Federal borrowing means the cost of interest is added, shifting the burden to a different group than those who benefited and possibly even to another generation. Eventually borrowing is always paid for through taxation.
The third option is for the Federal Reserve to create credit to pay the bills Congress runs up. Nobody objects, and most Members hope that deficits don’t really matter if the Fed accommodates Congress by creating more money. Besides, interest payments to the Fed are lower than they would be if funds were borrowed from the public, and payments can be delayed indefinitely merely by creating more credit out of thin air to buy U.S. treasuries. No need to soak the rich. A good deal, it seems, for everyone. But is it?
The “tax” is paid when prices rise as the result of a depreciating dollar. Savers and those living on fixed or low incomes are hardest hit as the cost of living rises. Low and middle incomes families suffer the most as they struggle to make ends meet while wealth is literally transferred from the middle class to the wealthy. Government officials stick to their claim that no significant inflation exists, even as certain necessary costs are skyrocketing and incomes are stagnating.
The transfer of wealth comes as savers and fixed income families lose purchasing power, large banks benefit, and corporations receive plush contracts from the government– as is the case with military contractors. These companies use the newly printed money before it circulates, while the middle class is forced to accept it at face value later on. This becomes a huge hidden tax on the middle class, many of whom never object to government spending in hopes that the political promises will be fulfilled and they will receive some of the goodies. But surprise- it doesn’t happen. The result instead is higher prices for prescription drugs, energy, and other necessities. The freebies never come.
The moral of the story is that spending is always a tax. The inflation tax, though hidden, only makes things worse. Taxing, borrowing, and inflating to satisfy wealth transfers from the middle class to the rich in an effort to pay for profligate government spending, can never make a nation wealthier. But it certainly can make it poorer.
Ron Paul – July 2006
This post is on target- could not dispute a word.
Someone with, say, $300K in lifetime retirement savings could draw an income of $15,000 a year with the 5% interest that was once usual for long-term CDs, but now is fortunate to get 2%, and that’s only if you go out 10 years or longer.
These days, only high risk “junk” debt pays 5% or more, while “blue chip” stocks (that are capable of dropping steeply) pay perhaps 3% dividends , if you’re lucky. Elders who rely on savings income and fear outliving their money are forced to take grave risk with their savings to generate enough money to live on, even with SS payments to supplement their interest payments.
Worse, the inflation of the past 40 years has probably been THE major cause of the steep underfunding of the social security trust fund and private pension funds. The money I contributed to the SS trust fund, from my paychecks in the 70s and 80s, is almost meaningless now. In short, there’s no way a person can “earn” or “save” for retirement against the rampant inflation, except by buying such “assets” as a home, which usually loses value when accounting for inflating property taxes and the cost of maintenance.
Taxation is theft, and the inflation tax is the most pernicious of all taxes. Unlike direct taxation, where the culprits are easy to identify, inflation seemingly comes from nowhere.
The politicians effectively divert blame for inflation’s nasty effects away from themselves and onto “greedy businessmen” or some foreign bogeyman. And the people buy it, because they were schooled in government indoctrination centers and no nothing about real economics or finance.
They are going to learn the lesson about inflation the hard and painful way soon enough.
With all due respect to Dr. Ron Paul, as I voted for him as a write in candidate in the last four elections, I can find a few words to dispute. Beginning with: “…printing money to pay for federal spending…”
“Money” is MINTED (ie Coined, READ the U.S. Constitution)
CURRENCY is “printed”.
Currency is a Claim Check (IOU) for “Money”, that is why the Word “NOTE” appears at the top of same
This is why currency was/is properly referred to as “dollar BILLS”
(Bill: Something Due and Owed)
“Borrowing money to cut the deficit”
The only thing which is being “Borrowed” today is CREDIT from the Phederal Reserve, for which FRN IOUs are issued to circulate as Currency, for all the paupers receiving wealth transfer payments, and Sheople too stupid to use actual Money.
If anyone can point out when the U.S. Constitution was amended, and Ratified by three-fourths of the States in the Union whereby Article I Section 8 Clause 5 now legitimately reads as “To print Money”; or whereby Article I Section 8 Clause 2 was changed to read as “To borrow Credit (from the Phed) on the Credit of the United States, then there might be a shred of merit to otherwise debate the subject matter.
However the truly wise are redeeming those FRN IOU notes back into lawful money (gold and silver Coins) U.S. Dollars at their current dishonored rate and taking the statutorily provided Tax Loss/ Write Off to avoid getting further ripped off with any federal “income” tax liability, to boot.
Cheers, S. Rex
Fiat money and inflation are synonymous. Mathematics proves it can only get worse as well.
The only way to avoid default and system collapse is to inflate the debt away, This can go on for as long as people think fiat has worth.
There’s an excellent quote by Henry Ford:
“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”
Then the quote by the Rothschild Brothers:
“The few who understand the system, will either be so interested from its profits or so dependent on its favors, that there will be no opposition from that class.”
And British Lord John Maynard Keynes:
“By this means government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft.”
But see that’s the beauty of it all, the average person can read all that and will have no clue what they’re saying.
Steve , most high GOD of knowing , Prince of wisdom
This may go on for another 20 years before we have a collapse. You don’t know what is going to happen .Do ya?Just guessing right ?
Steve , I know I’m annoying but it really chaps my ass when people like you claim to know the future. You are not prophet. You are not a witch are you.How about sorcerer.?No none of the above?