Inflation: "One of the biggest taxes is one that is not even called a tax"

One of the biggest taxes is even an unnamed tax - inflation. When the government spends the money it earns, it takes over part of the value of your money. "It's a quiet tax, but it's often a heavy tax for everyone, not everyone," he said. Incomes are low.

From Thomas Sewell's article , "Taxing the Rich Will Have Disastrous Consequences for Others."

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That the central banks were totally surprised by today’s inflation indicates a fundamental failure. Surely, some institutional soul searching is called for....

"The obvious question is, first of all, how has the Fed [և the domestic reserve bank] distorted its primary objective of maintaining price stability. The fact that the Fed [և the Reserve] has surprised by today's inflation is a sign of fundamental failure. Of course. An institutional reassessment of values ​​is in order...
"America [և the world] is full of debt. Everyone assumes that taxpayers will lose out in the next economic downturn. Student loans, state pensions, and mortgages are piling up waiting their turn to save Uncle Sam. But each crisis demands more and more blood transfusions in the city, and the fire will spread.
“In 2008, regulators and lawmakers were at least smart enough to take moral risks, fearing that investors would profit in good times and taxpayers would absorb losses in bad times.
The same Fed that missed mortgage risk in 2008 – the 2020 pandemic – now wants a “climate risk” stress test that will surely see the next war, the next pandemic, the default or failure of sovereign debt. . Next war, other major sabotages. Federal Reserve regulators don't even ask the final questions. And although they speak rhetorically of "linkages", "strategic interactions", "network effects" and "credit cycles", they have not yet decided what "systemic" risks are. », they did not give everything. An inclusive term to make it inclusive. Regulatory authorities.
"Regulators will never be able to anticipate risks, skillfully measure the assets of financial institutions, or ensure that huge debts can always be repaid." We need to change the basic principle of the financial system, where the government always guarantees huge debts in times of crisis. difficulty. We have to do it before the firefighters test."
John Cochran from his book " Accounting" .

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The Federal Reserve’s faith in monetary policy shows how startlingly little it understands about its disconnection from Main Street.

Get the book here

“[ Decades ago, the phalanx of economic sophistication of the Federal Reserve misunderstood the U.S. economy and often pursued policies that did not yield the expected results.
“This is because the Fed and most leading academic economists believe that skillful manipulation of the money lever can boost employment or control inflation. But that implies a direct link between the Fed and Main Street. The truth is that any interference in monetary policy is a financial system. It is a complex group of millions of individual bankers, retirees, fund managers, private investment investors, day traders and others, each with their own incentives. She pursues her policy on the main street. "

~ From a review by Joseph S. Sternberg, " A Review of Easy Money Rulers : A Sense of Serious Ability "

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One of the biggest, and one of the oldest, taxes is inflation...

" Inflation is one of the greatest and oldest taxes. Therefore, governments have been stealing the wealth of their people, not just for centuries, but for millennia...
"If you put $1,000 in your piggy bank in 1960 and spent it in 2000, your money has lost 80 percent of its value over time.
“Income tax only shifts money out of your current government income, but it doesn't include money you've saved over the years. With inflation, the government takes the same from both...
“It's bad enough when the poorest are forced to give the government an equal share of their wealth as the richest, but it's appalling when the government cracks down on the poorest.
This can happen because the wealthy can easily convert their wealth into things like money like real estate, gold, or other assets that appreciate in value with inflation. real estate or gold. Put a few dollars aside. But wherever it hides, inflation is free to steal its value.”

~ Thomas Saul from his article “ Inflation Can Tax Both the Rich and the Poor ”

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Money, like chocolate on a hot oven, was melting in the pockets of the people...

“ Inflation and credit expansion, the current preferred method of opening up government, do not increase the amount of resources available. "They make some people richer, but only to the extent that they make others poorer."
~ Ludwig von Mises, from his book Bureaucracy .

RELATED (from the Worstall Team ):

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“Today, people are beginning to understand that the government’s account is overdrawn…”

“ Inflation” is defined in the dictionary as “an unnecessary expansion or increase of the national currency, that is, by issuing paper money that cannot be purchased in kind” (Random House Dictionary). Interestingly, the word “inflated” is defined as “inflated with air or gas; swollen.

“The latter is no accident: when it comes to social issues, 'inflation' does not mean growth, expansion or expansion, but 'unnecessary' expansion, either inappropriate or misleading. The expansion of the country's currency (which, by the way, cannot be done by individuals, only by the government) is to suppress the flow of paper backed only by promises (or gossip) as assets. and accept the current values. Goods or services of citizens in exchange, until the wealth of the country is exhausted. A similar act done in private is the transfer of checks to a nonexistent bank account. But playing in private is considered a crime, and most people understand why such activities cannot last long.

“Today people are beginning to understand that the public account is overflowing, that a paper is not the same as a gold coin, nor a car, nor a piece of bread, and that you will not achieve it if you try to counterfeit money, he will simply drop the coin and declare bankruptcy.

~Ayn Rand, from her essay "Moral Inflation"

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100% of excessive inflation is due to bad monetary policy.

"100% of excess inflation is due to bad monetary policy. There is no doubt about it. I don't know of any respectable theory (Monetarist, Keynesian, Austrian, etc.) where this is not true.
"However, according to a recent Vox article, economists do not know the cause of the current high inflation."
"When inflation is higher than it should be as a result of demand, it is always 100% conditioned by bad monetary policy.
"And now Vox is telling us that economists are talking about 'business greed' now, seriously?"
And who are these so-called "economists" according to "Vox", "Progressive" ...
"Wait ... I thought leftists should 'believe in our science.' When did advanced economists become the leftist version of QAnon?"

Scott Samner said in his message that " 100% excess inflation is due to bad monetary policy ".

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Central Banks Cannot Undo the Damage They Have Already Caused

The unprecedented financial expansion of the central bank has now deteriorated. . .

Central banks cannot reverse the damage

Frank Szostak

On March 16 this year, the US Central Bank (also known as the Federal Reserve) raised its federal funds target to 0.25 percent and 0.50 percent. The increase was due to a significant increase of 7.9 per cent in the annual growth rate of the CPI (7.5 per cent in January and 1.7 per cent in February). February last year).

Most commentators believe that by raising interest rates, the central bank will be able to keep up with the prices of goods and services. Proponents of her case have been working to make the actual transcript of this statement available online. It was a dramatic change. In December 1986, the annual CPI growth rate of 14.8% fell to 1.1% in April 1980 (see Table 1 below).

Rice. Graph 1 ፡ Category CPI and Federal Funds, 1980-1986

Note that commenters typically say that the growth rate measured by the consumer index is “inflation”. However, we believe that inflation is linked to an increase in money supply .

Thus, some observers say that inflation is not the result of an increase in supply. Instead, we believe that the rise in funding is due to inflation.

Commodity prices are the amount of money paid, but the more money there is in a particular commodity market, the higher the commodity price. However, in the same way, this is offset by an increase in the amount of money in one market. Only an increase in the supply of money will allow all prices to rise in all markets. However, all of this inflation is not inflation itself, but as a result of rising money supply, the inflation profile is the same .

While this may be bad, inflation is much more important than the price of a commodity. This is because an increase in money supply makes it impossible to change anything, which leads to the same result as counterfeit money. This false capital will gradually weaken the creators and weaken their ability to create wealth. This in turn weakens the standard of living, even if real capital is consumed.

Note also that when this new currency enters it first enters a specific commodity market. When the price of these goods reaches a point of no return, the money will start to go to the so-called low prices. This gradual transition from one market to another causes a time lag between the rise of new money and the impact of wealth creation.

Central banks do not set interest rates. People do.

Note that the interest rate does not specify the monetary policy of the central bank. On the contrary, it depends on people's choices . According to Carl Menger, founder of the Austrian School of Economics, the phenomenon of interest is a time when people value similar goods and services more in the future. This is what we call “choosing the time”.

For example, most people would rather pay $ 100 a year than receive $ 100 a year. This is an assessment of the different people who determine interest rates in all markets.

Note that great respect for existing objects is not the result of immoral behavior, but of knowing that it is impossible to live in the present. As you can see ,

The future development of human life is always a process that affects previous development. If it is interrupted, it is a process that cannot be followed, and if it is severely interrupted, it cannot be fully recovered. Caring for our past lives is a prerequisite for our present and future development. Economic imbalances aside, we can conclude that savings people want to address their immediate needs first, and then try to meet their long-term needs. Depending on their distance. A

Therefore, the various elements and services needed to sustain life should be more important to the person than similar items and services in the future. A person has a better chance of anticipating the same good things than in the future.

Of course, each has different time options. People with less money are often short-lived and only pursue short-term goals, such as building a simple device. However, as your finances grow, you may want to consider building better tools. By increasing the amount of money, people can spend a lot of money on improving their quality of life over time.

Again, before the money is raised, it is possible with additional resources if the need to maintain life and security is impossible to carry out several long-term projects.

Few people accept it without profit. Maintaining the course of life, in addition to following the times, requires an increase in wealth. The spread of wealth shows positive benefits.

Is the rate hike the main reason for the increase in capital investment?

Contrary to popular belief, low interest rates are not the reason for the increase in investment. It is not the reduction in interest rates that allows us to increase the size of capital goods, but the increase in savings.

This "Savings Bank" is made up of finished consumer goods. It is this set of resources that encourages people to upgrade and expand their capital goods, such as equipment and machinery. With these added and improved capital goods, the production of future consumer goods can be increased.

Note that this free market savings repository does not bring more (or less) future production at all interest rates. It is the sum of the time choices of individuals in the major (or smaller) direction that forces the producer to make that decision.

Individual decisions have been made to allocate additional resources for the production of capital goods by reducing individual time priorities, that is, by giving importance to future products over current ones.

Interest rates, therefore, are only indicative of what people decide about current and future consumption. (Again, a reduction in interest rates does not increase capital investment.

In a free and unlimited market, lowering interest rates means that people are starting to choose the future consumer rather than the consumer. Companies that want to succeed in their business continue to lead the way for consumers and build the right infrastructure to meet the needs of more consumer products in the future (not now).

They report that people have increased their savings by reducing their time options, which will help make the product structure more focused. Therefore, lowering the free market interest rate is a sign of future productivity and implementation.

Note that fluctuations in free market interest rates are similar to changes in user time preferences. Therefore, a reduction in interest rates is a response to a reduction in people's time options. Therefore, when companies see a fall in market interest rates, they will respond by increasing their investment in capital goods to meet the demand for future consumer goods. (Note again that in a free market economy, declining interest rates indicate, in relative terms, that people are more likely to accept future consumer goods than current consumption.)

But what I am saying here is what is happening in a free and unlimited market, especially in a market that is not paid for by the central government. The main reason for the discrepancy between the so-called “market interest rate” and the interest rate described here (which is the interest rate that fully reflects people’s time choices) relates to the actions of the central bank. For example, regardless of the timing of the individual election , the loose monetary policy of a strong central bank will reduce interest rates. Companies are responding to this decline by developing capital goods, such as tools and machinery, to meet future demand for consumer goods. Keep in mind, however, that consumers have not changed the choice of current consumer goods. The interest rate has not dropped. Therefore, there is a gap between the time option and the market price.

It is this gap that has created the gap between consumption and consumption, indicating future economic changes and contributing to the current excessive consumption of capital.

During this period, companies responded to the fall in market interest rates as a result of the difference in interest rates and market interest rates. At some point, after bankruptcy, companies may realize that the decisions they make in the expansion of capital goods are wrong.

Why the congestion could not fix the weaknesses of the previous free shelf

According to Ludwig von Mies, a tight financial position cannot eliminate the weaknesses of a previously weak position. (In other words, the central bank cannot provide a safe haven for the economy.) ( Compares to trying to find a solution to the tragedy of a car accident.) :

Mises also shows that inflation can never be reversed. Moreover, money laundering destroys market prices, wages, and interest rates in unlimited market processes.

Sharp interest rates can undermine the bubble’s current yield, but it can also cause various distortions that affect resource producers. The strong stance is still central bank intervention and in that sense it still misleads the consumer interest rate signal. The accumulation of interest rates has not yet cluttered resources according to the main preferences of users. As a result, tightening interest rates could have an impact on inflation.

If we accept that inflation is linked to an increase in the money supply, then we just need to close the gaps in the Central Bank. A detailed study shows that the central bank is responsible for the increase in cash flow.

Policies aimed at stabilizing inflation can cause economic shock. AD Remember that in February 2021 the value of our dollar grew by almost 80%! It's amazing. Given the background to such significant growth, it is not surprising that the annual growth rate of the CPI has increased. And in the context of this article, one can begin to understand why it hurts instead of improving economic conditions, rather than slowing the growth of the CPI and stopping the growth of the financial supply.

Conclusion

While maintaining our lives is the ultimate goal of individuals (as long as our species continues to breathe), current benefits will continue to be valued more than future benefits, now more than $ 100. $ 103 a year, and central bank interest rate fraud will not change that.

But that doesn't stop them from trying. However, any attempt by Central Bank politicians to refute this would be detrimental to the people and would reduce the quality of life of the people.

On the one hand, if people do not save enough money to invest more in capital goods, the decentralization of interest rates in the central bank will not help economic growth. It doesn’t work because real savings can’t be replaced with large sums of money and low artificial interest rates. It is impossible because nothing can be created.

Similarly, by raising interest rates, the central bank will not be able to compensate for its attitude towards interest rates. A strong attitude can lead to other distortions. Politicians must therefore leave the economy alone and keep the market completely free from Central Bank interventions.

***

Dr. Frank Szotak is a leading Austrian economist and Director of Applied Austrian School of Economics Limited , which assesses different market trends using the Austrian school strategy. AASE aims to make the Austrian economy more accessible to entrepreneurs.

Versions of this post have already appeared on Mises Wire and Cobden Center .

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Wage raises as such are not inflationary

There is a lot of nonsense in these things. Some argue that wage increases are "inflationary." But it is not inflationary per se. Nothing is inflationary except inflation, that is, increase in the amount of money of the situation, no one but the government [and its departments] can cause the kind of inflation that unions can cause by forcing employers to accept wages for above the potential market rate: inflation is not higher". find a job. "Inflation is a policy put in place by the government to prevent large-scale unemployment that would otherwise increase union wages."

~ Ludwig von Mises, from his 1958 article "Wages, Unemployment, and Inflation" collected in his book Planning Liberty .

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The bamboozle has captured us...

“ This is one of the saddest lessons in history. If bamboo has existed for a long time, we will reject any evidence of bamboo. We no longer want to know the truth! Bamboo supports us. That's why it hurts. Let's take it. It is given to us. "

Կար Van Carl Sagan, Passionate World D. Science as a candle in the dark

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...money rots [updated]

Source: Reserve Bank of New Zealand.

“In a world where central banks are actively assessing inflation, money is rotting.”

~ Lionel Shriver, from the 2016 dystopian novel Mandibles [ Hayek's Cafe Hat]

Modernization:

Ludwig von Mises noted this in 1923 in his paper "Monetary Stability" (collected in "On the Manipulation of Money and Credit " [pdf], p. 43):

"However, inflation is not an isolated phenomenon. It is only part of the overall picture of the political, economic, social and philosophical visions of our time. Just as the sound monetary policy of the gold standardists went hand in hand ... with liberalism," free trade, capitalism and peace, as well as inflation, an integral part of imperialism, militarism, protectionism, the state and socialism.

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The NZ Reserve Bank is now in panic mode....

After keeping interest rates so low and launching a $ 53 billion quantitative easing program, [NZ Reserve] is in a panic. They pressurize lenders to buy [and borrow] homes at inflated prices. Debt, closing their eyes in 2008, they agreed to the target and did not learn from the financial crisis.

"RBNZ has been praised around the world for being an unusual New Zealand He was the driving force behind inflation. We have become the gold standard of financial trust.

"It simply came to our notice then.

Robert McCulch , professor of economics at Auckland Union

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Why do consumers, who interact with markets every day, have essentially no idea where prices come from?

Why is it that every day consumers in the market do not know where the price is coming from ? I think it's because they don't have the motivation to learn. Price including lunar phases and cat food needs. ” Or I may have a complex theory based on supply and demand analysis. Knowing the ocean waves and climate makes you a better navigator Chemistry and physiology make you a better pharmacist It just doesn't work Well the grocery store is one of the best features Free market you want a lot. There is little that motivates people to learn economics and understand economics.

ያን Ian Filmore, an economist at the University of Washington, cites prices that people do not understand

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Q: How do you cure inflation? A: You stop printing money.

Question: How is inflation handled?

Hayek: Stop printing money.

~Frederic Hayek, in an interview with Meet the Press , Huttipp David Henderson, asserted that Hayek later spoke in detail: “In a way, press detention is a metaphor, because it is now implemented by the Federal Reserve System.” And still . !

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Napkin Maths to Explain Inflation

Printing and printing does not stimulate or stimulate the economy, David Sukoff reminds us in this guest post. However, the main inflation ...

Lipstick calculation to explain inflation

Guest post by David Sukoff

Legend has it that in 1974, Arthur Lafer described supply-side economics in a paper towel created by Lafer Curve . "And the results are clear!" The more tax you pay in this case, the less you earn. On the contrary, low taxes encourage economic growth. (Lafer curve is often used to show that lowering tax rates increases tax revenue.)

It is easy to see that low wages will reduce employment or that free trade will benefit both parties. For all the recent inflation, Napkin has been using the simple fact that inflation is the cause of inflation (meaning we can borrow money again today or the government will pay). This.). Spend on loved ones).

Of course, we can write books, write research papers, hold town hall meetings, and have regular conversations. However, for some financial problems, you only need a paper towel. In order to apply mathematics to Napkin, the explanation must be clear, concise, and in fact the paper is certified (or derived from Napkin's law, such a 900-word blog). ).

First of all, we have to understand that inflation is primarily a matter of money (as Daniel Agler adjusts profusely here in another post). When money is printed or borrowed, it adds value to the economy.

Time. Full point.

For inflation, we can draw a historical chart of the supply of currency , in this case the US dollar. It is no coincidence that March 2020 is a watershed moment to increase pressure. This is what happened when the federal government pushed for the CVD to "revive" the economy - and that's where inflation began. .

The rest of the area under the lipstick includes a recognizable and beautiful contrast.

• The label (number below) is the total cash supply.
• The counter (number above) can represent anything. For lipstick, it is only X.
• As the account grows, the value of X decreases with the amount of money in the system. This is not rocket science, but it is an undeniable element of math. Lipstick Math.

It does not matter what the "X" is. For example, suppose some people are stuck on a coconut island with the only assets of their small economy, and the total amount of money between them is $ 100. On Monday, coconuts are sold for $ 5 each. But if the island government publishes and distributes $ 100 on Tuesday and nothing happens, the price of coconut will return to $ 10. As an equation, this would be 5/100 = 10/200. With two dollars in circulation, each dollar can now buy half as much as before. (Or as we usually say, the price of coconut has doubled!)

But what if we increased our supply of coconuts? Suppose there were 20 coconuts at first. Then there were 40 coconuts by natural miracle. If the supply increases from $ 100 to $ 200, coconut costs $ 5 each. Thus, the island government can "manage" economic growth by spending money to maintain its supply chain. But if you invest more in coconut development , the cost will increase. We are still comfortable in this fabric.

The US economy is obviously more complex. But logic and math are preserved. Factual data on inflation supports simple logic and arithmetic, which has been repeatedly proven by Lafer.

The so-called First Awakening Law of the Davidic Age On March 27, 2020, it was approved at a key point in the funding table. It was $ 2.2 trillion. The second was approved on December 21, 2020, in addition to the combined expenditure bill of $ 900 billion. The so-called third stimulus bill, the U.S. Rescue Plan, was approved on March 10, 2021, at a cost of $ 1.9 trillion, at a cost of $ 5 trillion. It is based on initial costs. Because we are still doing this, we can understand the funding program more or less, which is currently $ 22 trillion, and the road ahead will be $ 17 trillion. As a result, $ 3 billion - $ 17 billion = $ 5 billion will be diverted to the right path. (This one has five, then twelve to zero!)

As a result, inflation has historically been so high that we had to sleep a little after lunch or two. Considering the obvious link between cash flow and inflation, one might wonder why it is important to take inflation when there are so many accounts. The answer to Napkin Mathematics is well known and clearly we started seeing very early, just like somewhere else. Again, more lipstick is needed, but we can draw flat, stock and stock charts, bitcoin, stone , SPAC , personal guarantees, etc. It was at a time when the press was crowded, prices were rising and consumer goods were being chased. . Unfortunately, these items were not included in the official inflation, so it was easy to lose to unknown analysts.

Unfortunately, we are all suffering from these political mistakes. In fact, the double suspicion is that in addition to the government's push for money, it is also causing inflation, which is behind the epidemic. In contrast, our politicians have underestimated the value of the dollar. The results were clear: a huge asset shift for existing assets (increased equity), capital misalignment (increased risk for failure) and high generational inflation.

Now, as usual, the government is pointing its finger at the outside world and discussing policy solutions that do not identify the source of the problem, but it will certainly grow.

They are responsible. And the ever-increasing cost and pressures of the economy are not the main cause of inflation. The explanation is simple, but the path to politics is clear. Stop spending, no, print money!

***

David Sukoff
Dave Sukoff is a community investment consultant who has previously created a $ 500 million fixed-income fund, is a software company founder, and has created numerous patents. Dave graduated from Massachusetts Institute of Technology with a degree in finance and economics.

His publication appeared in the Economics Education Foundation ( FEE ).

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The cost-of-living crisis: "It’s not such things as 'supply shocks' or war that are responsible"

" All of this is due to [rapidly rising spending (and the resulting housing crisis]) as [central banks] continue to keep inflation flat. [As a result of [the bank's] actions] a system of tens and hundreds billion].
[supplies] "responsible" are not things like strikes or [war]. Without new "extra cash flows", rising oil prices will be accompanied by lower prices for almost everything. The reason for this is the purchase of oil etc. is to get almost all the extra money spent on the economy without spending it elsewhere, as the total gross spending capacity of the economic system will be limited by a limited amount. The price of oil and [food items] will not be as high as before…
"[Central banks] and the rest of the government think that their job is always to make sure that average stock prices and house prices never fall too low, to fill the economy with so many new things. prices. To achieve this will require additional money ... It can be thought that housing prices should drop significantly ... and the process should go too far.
"At the moment, in the near future, maybe nothing can stop [central banks] from continuing inflation. The big lobbyists are bigoted about this. and intermediaries love this. Homeowners love it, unions love it, the political establishment loves it… As the ecologically clean agenda for energy production dwindles, inflation subsidies will be used to fund it. It will lead to impoverishment, etc. Subsidies will be needed to compensate for them - more inflation.

: George Reisman, Creditor Protection Bill [emphasis added]. For a more detailed explanation of why supply shocks did not lead to higher economic prices , read Chapter 19 of his dissertation, Capitalism [from page 895] [free pdf here ]

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