Wednesday, March 18, 2009

Debt Spending Inflation is Taxation, not Stimulus

Fantastic piece below about government-caused inflation. Printing money, as the Fed today calls it, quantitative easing or buying bank assets or whatever, is legal counterfeiting! It is a form of taxation. As this article brilliantly puts it, it is not placing a debt burden on a future generation, it is really stealing money from people today.

Think about it! The government prints the money today (the so-called debt) to co-opt economic resources now. That money removes wealth from people's pockets today, by debasing the value of their dollars because of the inflation of the money supply. It is the ultimate trickery. People think they are getting a stimulus, but in reality, they are getting screwed because of of their money is worth less. Rather than declare a Jubilee, which would honestly and openly cancel debt to the benefit of the common man, the government is determined to inflate the dollar to clear our debt, to the disadvantage of the common man.

Legal counterfeit blends with the genuine money supply and is indistinguishable from it. It is, therefore, more insidious and, through sheer volume, vastly more destructive of the power of the monetary unit than is illegal counterfeit. It inevitably manifests itself in higher prices of goods and services. The public is bewildered by the higher prices, and it requires but slight propaganda by the author of the inflation, the Government, to deflect criticism onto private business which, in the end, is always obliged to bring the bad news of rising prices to the people. The public does not realize that it is, in effect, indirectly paying taxes over the merchant's counter instead of paying them directly to the tax collector. The Government finds this a ready way to increase taxation without being detected.

To collect sufficient taxes to balance an extravagant budget brings citizen resistance if the tax collection is obvious. However, inflation taxation is not only covert; it operates by seemingly putting a dollar into the taxpayer's pocket instead of taking one out. By lavish counterfeiting and spending, the Government increases the number of dollars in circulation and thereby creates an appearance of prosperity.

We delude ourselves, moreover, if we think that deficits, or government "debts," are deferred taxes to be paid by future generations. They are current taxes, paid not only by the non-bondholders to the bondholders as interest, but by the bondholders themselves through the depreciation of the purchasing power of the dollars represented by the very securities that they hold.

Strictly speaking, there is never and there cannot be a government deficit. All government expenses are and must be paid by taxes. What is commonly called taxes is merely that shown in formal tax revenues, whereas the amount which is called deficit is in reality another bracket of taxes—inflation taxes—and this the most vicious form, since it disturbs and ultimately destroys the monetary system upon which the entire economy depends.

Even tax-conscious persons think only of the taxes shown by government revenue receipts. They tell us that the United States is approaching the danger point of a tax collection rate that is thirty per cent of the national income. They do not realize that it has already passed beyond this point, because they do not reckon the unaccounted taxation, actual and potential, through the depreciation of the dollar -- inflation taxation. As inflation accelerates, the rate at which conventional taxes are levied will not be able to keep up with the national income—this despite the false dollar prosperity floating the citizenry into progressively higher income tax brackets. The relative percentage will decline, giving to those who take this narrow view the impression of a decline in taxation. It is but a fool's paradise. Can anyone blame the politician for employing this painless way of plucking the goose?

Thus it may be seen that more than fifty per cent of today's dollar is "water" injected by government-created "dollars." But this is not to say that the total supply of counterfeit has yet manifested itself. Actual inflation and potential inflation are two different things. Prices are determined not by the total monetary unit supply relative to the total goods supply, but rather by the amount of each that actually meet in the market. All of these dollars are being held out of the market, hoarded under the illusion that they will grow through savings. But even with a moderate rise in prices, more is lost from the principal than accrues from interest or dividends. Gradually, this will become more and more evident to more and more people, thus causing holders of government securities and savings deposits to convert into goods and property. This will bring into the market a flood of dollars that are now inactive.

The resulting price rise will pinch the population of low and fixed incomes and thus throw upon the government the obligation (under the now prevalent idea that the government owes every man a living) to issue additional counterfeit dollars. This in turn will cause further price rises, calling for further counterfeit and so forth until the dollar is completely extinguished.

Realism therefore compels us to recognize that inflation will continue until the point is reached at which the dollar will be worthless. The Government will find it much easier to let taxation by inflation wipe out its debt than to liquidate its debt through direct taxes by running a surplus budget. The nation born under the slogan, "No taxation without representation," is now practicing taxation by misrepresentation.

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