Thursday, May 5, 2011

Inflation: Obama's Undeclared Tax Increase

         Contrary to common parlance, inflation is not rising prices.  Nor is inflation the result of rising prices.  Rising prices are the result of inflation.  Inflation is when the government floods the marketplace with printing press money -- as it now is doing.  The consequences of that flood surround us on all sides, as I aim to point out.
Like other commodities, the value of money is determined by the interaction of supply and demand.  When the supply of money increases dramatically compared to the supply of goods and services, the value of money declines.  In that case, it takes more dollars to do what fewer dollars used to.  Because the Obama administration prints money day and night without end, the gallon of gas that cost $1.84 when he took office now costs $3.92 just half way through his term.  The rise in gasoline prices is not the result of decreased supply or radically increased demand.  They remain basically what they were when Obama took office.  The difference is inflation and the wild-eyed speculation it engenders, which taxes you at the incredible rate of more than $2 per gallon of gasoline.
Naturally, Obama could not have gotten passed a new tax of more than $2 per gallon of gas. Just trying it would have made the mid-term shellacking he and the Democrats suffered even worse.  Instead, he simply amped up the printing presses, thereby stealing value from every dollar of every person who owns even one, making gasoline prices rise dramatically -- just as it did nearly everything else -- which you have noticed whenever you bought milk, bread, cereal, or meat for your family -- or bought gas.  Thank inflation.  Thank the president. 
Why would Obama do it?
He did it because inflation favors debtors.  The Obama administration, you’ll recall, is the world champion of debt.   In order to reduce its own financial burdens, the government induces inflation.  Inflation allows debtors to discharge their obligations with dollars of reduced value.  It steals from creditors.  Creditors, therefore, are reluctant to make loans because inflation makes lending more likely a losing proposition.  If borrowers can just print a batch of reduced value dollar bills in order to pay their debts -- in other words, if borrowers were counterfeiters -- lenders will be justifiably reluctant to give them loans.  You’ve probably noticed that loans are harder to get.  Thank inflation.  Thank the president, the Counterfeiter-in-Chief.         
Because inflation means that today’s dollar is worth more than tomorrow’s, inflation discourages saving.  If you get more for your money by spending it now than if you spend it later, you spend it now.  But if you spend it now, savings diminish.  When savings diminish, there’s less money from banks for investment.  Less investment means fewer jobs and higher unemployment.  That is, by undermining the value and stability of the dollar, government undermines capital investment.  On the one hand, investors can’t easily get loans.  On the other, they are reluctant to enter into long-term commitments when the very value of money itself is unpredictable.  They can’t calculate what they’ll earn or what they’ll owe.  Unstable money drives businesses overseas, to places where the financial climate is more predictable.  You’ve probably noticed both the high rate of unemployment and the flight of American businesses to other countries.  Thank inflation.  Thank the president.
         Think of inflation as government alchemy.  In the Middle Ages, alchemists tried everything they could think of to turn some other substance into gold -- with predictable results.  Governments try the same trick now.  When Roosevelt took the US off the gold standard, he wanted to make paper serve as gold.  Paper is more easily manipulated than gold, and he wanted to manipulate the money.  Roosevelt became the anti-Midas:  Rather than everything he touched turning to gold, the gold he touched turned to paper.  The value of the dollar dropped accordingly.  The results are devastating, especially to the poor.
For example, if you were born into a poor family in 1944, and if, over those intervening years, you worked incredibly hard and managed to increase your family income by more than 3000 percent, you’d have fallen even further below the poverty line because of government-induced inflation.  Inflation makes the escape from poverty even more difficult than it already is because it requires ever-increasing amounts of money from you to produce your escape.  Inflation is a chain that binds the poor to their misery.  Perhaps you’ve noticed that the percentage of persons in poverty in America rarely goes down.  The cliff of prosperity is too high and steep to scale.  Thank inflation.  Thank the president.
Think of inflation as a teenager’s credit card.  The teen gets the goodies and the parents get the bills.  For “teenager,” read “government,” and because government prints its own stage money, for “government” read “tyrant” and “counterfeiter.” With inflation, the tyrant-counterfeiter gets the goodies, and you are left to pay his bills with the reduced-value dollars he has printed.
Now do you see?
Inflation is a weapon.  This administration aims it at us.
Perhaps you are one of those who expect government to help protect you from thieves. Perhaps you think that government ought to track down, capture, and punish counterfeiters.  But what if the thief and the counterfeiter are the government?  What happens when, say, the government prints several hundred billion dollars or so in order to pay its bills, thereby stealing value from its citizens’ financial resources?  This happens:  Dollars lose their value; loans are hard to get; prices rise precipitously; investment slows; jobs go overseas; unemployment is high; the poor are chained; and the nation’s prestige is diminished.
Welcome to Obama’s world.
As long as he’s your president, it’s your world too. 

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