Think back to the ancient date of 2008, if you will. Candidate Barack Obama, during the general election pledged that 95% of all Americans would see a decrease in their total tax burden. He went on to list the complete guide to all of the taxes he would not raise, and included almost everything. Putting aside for the moment that the Health Care Law known as Obamacare represents 13 new taxes and is indeed the single largest tax increase on any population during the entirety of human history, we can give President Obama a pass on that one entirely, and he still flunks the keeping of his promise test, at least on this point.
You will notice the word almost in the paragraph above. The one tax not listed is something that not everyone recognizes as a tax, but it is a tax none the less. It is more egregious in nature, since it is hidden from you, and you sometimes do not realize that you have paid it. You will notice its effects certainly, but you will doubtless blame something else, and most probably someone else. The tax Barack Obama has raised is the purposeful devaluation of our currency. You pay it every time you spend your hard earned money. It shows up in the form of increased prices for commodities, like gasoline, orange juice, milk or eggs, and in the prices of clothing, toilet paper, or even in your cable bill.
With normal inflation, the $100 you spend on groceries will only purchase $97 worth of stuff next year. The cost of inflation is the $3 worth of purchasing power your money loses, compounded on an annual basis. Earlier this week, I read that the Administration and the Fed are teaming up for another round of something called quantitative easing. QE3 is the benign sounding moniker of this tactic utilized by tinpot dictators hailing from banana republics stretching back for centuries. It is a tax, and it is going to be felt far more by America’s Poor than by the well to do. That makes it a regressive tax, and all the worse, since the people who are paying the tab, while they will most definitely feel it, will not recognize its root. It will also not be felt solely in the prices that you pay for goods and services, but also in your retirement savings.
If you have $250,000 in your 401k, you will feel great next year when you wake one morning and see the balance sitting at $350,000. When you go to spend it however, if it only purchases what $100,000 bought last year. Will you still feel like you are ahead? You will have paid a tax on your purchasing power equal to $150,000, with out ever having written a check to Uncle Sam. Following is a short video, explaining in pictures, how quantitative easing works.
There were a couple of mistakes in the economics of our young movie producers to be sure. Taking us off of the Gold standard was never the root cause of inflation. Inflation was present during the days of the gold standard, and in fact even felt during the medieval period in Europe. Gold was in fact such an impractical currency standard, that even when we employed it, paper currency was substituted in the form of Gold Certificates. Putting all of that aside for the time being, and indeed until sufficient time on just the Gold Standard alone can be spent, what caused the inflation of the 70’s was a three fold problem, all of them being the monetary policies of three different Presidents. Lyndon Johnson, Richard Nixon and Jimmy Carter all of them partook of the quantitative easing myth. Johnson and Nixon utilized the program to pay for things they wished to spend money on, and they wanted to hide that cost from the American People. Jimmy Carter utilized that program because of a disastrously wrong notion that there was a trade off between unemployment and inflation.
One of the side effects of course for quantitative easing is the artificially inflated price of the assets that the Fed purchases. Any asset purchased is going to be priced on a bubble. When the Fed decides to sell, in order to cool inflation, those bubbles will burst, and we all know what happens when bubbles burst. Since most of the government’s malfeasance is in purchasing the very bonds that they are issuing, and paying less interest for them that what the market says they are worth, that bubble will be the worst pop, when it bursts.
I guess the most perplexing thing for me is this, Quantitative easing has not ever worked to solve the problems it was intended to solve. Never in history, has any leader looked back upon the results of this fiscal policy and said to themselves, gee, I am glad that I did that. What it has always done though is fool politicians into thinking, hey it’s O.K. to spend irresponsibly. It has also caused significant problems, like societal collapse, revolution, poverty, etc. The only reason why those things will take a much longer time to happen here is that we have built in this country considerable wealth as a base to pay for this stupidity. The problem of course is that even the wealth of the United States is not infinite.
Cross Posted at Musings of a Mad Conservative.
Tags: quantitative easing
