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Inflation: The Silent Tax

Submitted by Steve Pearce on Mon, 2010-04-26 11:27

 Food prices for the month rose by 2.4%, its sixth consecutive monthly increase and the largest jump in over 26 years. NIA believes that a major breakout in food inflation could be imminent, similar to what is currently being experienced in India.
 
Some of the startling food price increases on a year-over-year basis include, fresh and dry vegetables up 56.1%, fresh fruits and melons up 28.8%, eggs for fresh use up 33.6%, pork up 19.1%, beef and veal up 10.7% and dairy products up 9.7%. (quoted from the NIA newsletter included at the end of this posting.)

President Obama promised that he would not raise taxes on the middle class.  He is!  And Congress did not even have to vote on it.

INFLATION.  That is how he is doing it.

How does inflation happen?  The government prints money; that is all it takes.  They have been printing a lot of it since last January.  You can watch this video of Glen Beck on money supply. 

When they print money, the prices of products you buy goes up.  It means you have less to live on, not because you make less money or that your taxes have gone up.  You have less to live on because your money is worth less, because the government is quietly printing money; the whole process is silent.  Think Alan Greenspan or Ben Bernanke.  You never hear much from them but they are the ones who print money.

The current gold price ($1150/oz) implies an annual inflation rate of 6.0 – 6.5% for the next 10 – 15 years.  This is because the price of gold is the first thing that responds when the Fed creates too much money, but the price of everything else catches up to gold eventually.  We will either bring down the price of gold (as we did 1980 to 1982), or we are in for a terrible inflation that will crush the middle class.

 

You have a 3 major problems being created by Washington right now.

  1. Inflation – this is a silent tax that causes you not to have the money to pay your bills this year when you were making ends meet last year.
  2. Taxes are going up.  Taxes kill jobs.  Then you are taxed more to pay for the people who used to be working but now are on welfare.  It is a vicious upward taxation cycle.  Given that what matters financially is the present value of future Federal revenues, and given that this PV is extraordinarily sensitive to the rate of economic growth, it never helps to raise taxes.  Rather, you should always cut the tax rates that impact economic growth and the growth would more than pay for the tax cuts.
  3. The Government is killing jobs through regulations – which means you have to work harder to pay for those people who are not working who could be working. (link to post about job killing regulation)

The solutions?  The solutions are pretty easy. 

  1. Stop killing jobs through tax increases.
  2. Stop printing money; keep the value of the dollar constant and strong.  Under the
    U. S. Constitution, this is the job of Congress, not the job of the Federal Reserve or the White House.
  3. Stop the job killing regulations.  We can protect the consumer, the worker and the environment without killing jobs. 

To do these three thing means the government must live within its means.  So we need to cut the size of the government 

The driver in all the solutions is Job Creation.  If we create jobs, those extra jobs are paying taxes and the government has the money it needs to function.  When this happens, there is no deficit so the government does not need to increase your taxes.  Because the government is funded, it does not need to print money.  When it keeps the value of the dollar steady, you are able to pay your bills. 

If we really want to create jobs, we have to decrease taxes.  Tax cuts create jobs.    Tax cuts create jobs in one dramatic way.  

Businesses have more to invest when we give them tax cuts.  When they have money to invest, they create jobs. Tax cuts change the incentives and shift money from consumption to investment.  Investments create jobs. Tax cuts on savings and investments, eliminating the death tax, capital gains tax and dividend taxes will all stimulate investments which in turn fuel job growth.

My wife and I used to own a company.  To add one more job, we had to save enough money to buy a $35,000 pickup and $115,000 of other equipment.  Short of having that much capital to invest, we could not create a new position.  When we had the cash, we expanded.  This is the way jobs are created nationwide, one company at a time.  Inflation or direct taxation slowed that process down.  Both inflation and taxation on producers are occurring now in our economy which is why we have almost 10% unemployment.
 
Additionally, the government must begin to live within its means. To do this, we need to cut the size of the government.  The government is performing functions that are not in the Constitution and which are counterproductive to job growth and an expanding economy.  Our economy grew at an average rate of about 3.5% over the last 70 years.  If we sustain even 2.9% rate of growth,  our unemployment problem goes away, the social security and Medicare problems go away.
 
A little common sense would go a long way in DC right now.  But the tax agenda is alive and well.  Sometimes the tax is a silent tax.  It will kill jobs and hurt you all the same. 
 
Call your senators and representatives today to express your opinion about inflation, the silent tax. 
 
The following article tells you about the massive food inflation that is hitting right now.
 
National Inflation Association:  U.S. Food Inflation Spiraling Out of Control
 
The Bureau of Labor Statistics (BLS) today released their Producer Price Index (PPI) report for March 2010 and the latest numbers are shocking. Food prices for the month rose by 2.4%, its sixth consecutive monthly increase and the largest jump in over 26 years. NIA believes that a major breakout in food inflation could be imminent, similar to what is currently being experienced in India.
 
Some of the startling food price increases on a year-over-year basis include, fresh and dry vegetables up 56.1%, fresh fruits and melons up 28.8%, eggs for fresh use up 33.6%, pork up 19.1%, beef and veal up 10.7% and dairy products up 9.7%. On October 30th, 2009, NIA predicted that inflation would appear next in food and agriculture, but we never anticipated that it would spiral so far out of control this quickly.
 
The PPI foreshadows price increases that will later occur in the retail sector. With U-6 unemployment rising last month to 16.9%, many retailers are currently reluctant to pass along rising prices to consumers, but they will soon be forced to do so if they want to avoid reporting huge losses to shareholders.
 
Food stamp usage in the U.S. has now increased for 14 consecutive months. There are now 39.4 million Americans on food stamps, up 22.4% from one year ago. The U.S. government is now paying out more to Americans in benefits than it collects in taxes. As food inflation continues to surge, our country will soon have no choice but to cut back on food stamps and other entitlement programs.
 
Most financial experts in the mainstream media are proclaiming that the recession is over and inflation is not a problem in the U.S. Unfortunately, they fail to realize that rising food and gasoline prices accounted for 58% of February's year-over-year 3.85% rise in retail sales. NIA believes price inflation is beginning to accelerate in many areas of the economy besides food and energy, and all increases in U.S. retail sales this year will be entirely due to inflation.
 
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