INFLATON, THE HIDDEN TAX

INFLATION, A WAY TO RUIN MONEY AND SOCIETY

by Dr. Lawrence Wilson

Contents

I. Introduction

II. Consequences Of Inflation

III. What To Do About Inflation

IV. Other Topics

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I. INTRODUCTION

DEFINITION

Inflation is the economic condition in which prices for goods and services are not stable, but are increasing. As it occurs, it takes more money to buy the same amount of goods or services. One could also say one's money buys less.

Inflation reduces the buying power of your money, so you become poorer, even if you have the same amount of money in the bank or in your pocket.

However, inflation is not simply rising prices. Inflation means there is more money out there chasing the same number of goods and services. As a result, the value of the money is diluted. One result is higher prices. There are also other negative consequences, as we will explore below.

The gasoline analogy. Inflation is like if a person were to slowly add water to our gasoline. You might not notice the difference at first. But after a while, the gas would not power your car as well and eventually it would not work at all. Your gasoline would no longer have the value it had before.

The milk analogy. Another common analogy is that it is like adding a little water to the milk that is sold in the store. For a while, no one might notice at all. However, the milk is less nutritious, and won’t taste quite right. Eventually, the people wake up and realize the milk is not nearly as good, although it might still look okay.

Since the money is diluted, it does not work as well and it takes more of it to buy things. For example, good, solid money 100 years ago could buy a nice house for about $20,000.00. Today, with the diluted money, it takes $200,000.00 or more to buy the same house. Higher prices are just a way we express the fact that the diluted money of today does not buy as much.

An example. Suppose, for example, the inflation rate is 3.5%. If you have $30,000.00, in ten years it will only buy $20,550.00 worth of goods. If the inflation rate is 5.5%, (which is closer to reality, as inflation is often underestimated by the government’s measurements), your $30,000.00 is worth only $16,650 in ten years. This should be enough to scare anyone. Let us explore what inflation is and why it is occurring.

II. THE CONSEQUENCES OF INFLATION

AN EXTREMELY DESTRUCTIVE HIDDEN TAX

Inflation is actually an old, secret method of taxing the people without their knowledge. This may sound strange because no one talks about inflation as a tax. However, I will explain.

When extra money is printed up and put into circulation, it costs the government very little. The only cost is that of printing. Each paper bill of any denomination from $1 To $1,000 or more costs less than fifty cents to manufacture. So it is almost free money for the government.

They just run the printing press and it suddenly exists. It seems like they can create value out of nothing. It is wonderful for the government, which is why most governments do it all the time. Most nations, by the way, do it far more than the United States. We are not used to inflation, but in other nations of Africa and Asia, it is business as usual.

The government can then lavish the money on all their favorite projects without worrying about the people complaining, because the money seems to be “free”.

However, it is not free. What it does is to slowly dilute the money that is in existence already, like diluting the milk in the analogy above. So all the money the people already have, including all their savings, salaries and all the rest, slowly start to be worth less. In this sense, inflation is a very hidden tax, or way the government confiscates the people’s real wealth.

If the government gave its new printed money to each of us to spend, it wouldn’t be so bad. Then at least we would all have more of the diluted or less valuable money. But they never do this, as a rule.

They give it their favored friends and projects. Everyone else is just cheated out of some of their wealth. This is indeed a sneaky way to tax people because:

- It happens so slowly that few people see it.

- It is hidden, as there are no tax forms to fill out or taxes added to your purchases or bills.

- Unlike other taxes, no one seems to force you to pay up on April 15 or any other day

- People actually feel richer because often their salary and the price of their house goes up. In fact, many actually have more money, but of course all that cash is worth less.

- Inflation does not require any new laws that people could debate and vote down. Thus it happens silently and secretly.

A TERRIBLE EVIL THAT DESTROYS SOCIETIES

Inflation, however, is more than just a hidden tax. It is one of the most effective ways to destroy a nation or society. In The Economic Consequences of the Peace (1920), John Maynard Keynes (who is not my favorite author) observed:

“Vladimir Lenin (the famous criminal, thug and founder of the former communist Soviet Union) was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose”.

Printing paper money that is not backed by gold and silver has many other negative effects connected with ever-higher prices and price instability:

- Businesses and individuals cannot plan for the future nearly as well. They simply cannot depend on stable raw material and other prices. Instead, they are forced to hoard goods, buy things they may not need but can use as bargaining chips and do other things that are costly and often counterproductive.

- Businesses are often far more afraid to take risks in inflationary times. They simply don’t know what the future will bring. This is terrible, because businessmen taking risks is critical for innovation, research and development of new products and new technologies.

- People lose faith in the government and in each other. Everyone has a tendency to believe that everyone else is cheating them. This causes social unrest, crime, violence, and even revolutions.

- Because planning is so difficult, maintaining a business or even a household becomes far more difficult. This causes many more bankruptcies, foreclosures, loss of homes and businesses and other very disruptive effects on society.

- As social unrest grows, strikes, protests and riots occur more frequently because so few people understand inflation and how to cure it. Anger mounts and civil society disintegrates.

- Inflation encourages people to go into debt. After all, when the time comes to repay your loan, you can do it with inflated and less valuable dollars. It is like borrowing good quality gasoline and being allowed to repay it in diluted gasoline.

This favors those who are not the productive people in society and it punishes those who save their money. This is not at all healthy for society.

- It is very tough for the working and middle classes in particular. They often depend on their labor, which is just not bringing them as much money as it did before. They don’t have assets that appreciate with inflation such as large homes and some stocks. Thus the poor people are hurt the most. Even beggars and those on welfare are hurt badly as they find their limited means just won’t buy as much as before.

- People who are used to saving some money find they cannot save money or the money they have saved is worth much less. They feel cheated and become angry and fearful.

- Basically, it impoverishes the people and ruins the health of society.

- It also tends to destroy democratic principles and substitutes a welfare type of state that rewards its friends and punishes its enemies by withholding money. This leads to distrust, anger and often revolution and decay of society.

III. WHAT TO DO ABOUT INFLATION

WHAT CAN ONE DO ABOUT INFLATION?

1. Do not live beyond your means. Live simply and do your best to save some money.

2. Put savings into gold. Gold is a true accounting system and tends to hold its value. This is true today. One can buy gold coins or there is are stocks in which money is simply put into gold.

3. Live healthfully. This is always a good idea. We recommend the development program only. Other methods of health care and nutrition are not nearly as good, in our experience of 44 years.

Another reason is when inflation really hits, the health care system will become very costly and government programs are usually cut back to save money.

4. Other inflation hedges. These are investments that tend to hold their value in a time of inflation. Besides gold, they include any tangible items that are useful to people, such as cars, houses, tools, equipment, land or real estate, electronic devices that don’t go out of date quickly, even good clothing, shoes and other real goods.

5. Become an activist for honest money. Share this article, write blogs or make podcasts, and share the truth.

6. Call and write your representatives in the state and federal governments. Tell them:

- They must stop spending money they don't have.

- They must work to get the nation out of debt.

- They must not print more paper money, or just create electronic book entries, also called “monetizing the debt”.

- They must return the nation – all nations - to a gold standard. This would effectively prevent the government from just printing money because all the paper money would have to be backed by gold. This means that anyone could turn in their paper dollars for real gold coins that cannot be faked or just ‘printed up’ at random.

Of course, the election system is also broken and must be fixed or there will be little progress:

- Voting machines and mail-in ballots are horrible and I believe violate the US Constitution.

- Women cannot be allowed to vote until the thugs or rogues are gone because they force women to vote Democrat or Liberal. If they don't go along, women are beaten and raped more. If this sounds unbelievable, it is not. However, women are not allowed to speak about it or they are beaten more.

- The entire voting system in The United States has been corrupted. Originally, there were electors, not voters. The true system needs to be restored.

- There are other problems, as well.

PREVENTING INFLATION

Inflation is really the most terrible of crimes. The American founding fathers knew this well and did their best to prevent it. The United States of America, among all nations, is perhaps the only one that has written into its National Constitution that “no state shall … make any thing but gold and silver coin a tender in payment of debts”. - Article I, Section 10.

This was put into the Constitution specifically to prevent inflation. Unfortunately, evil people violated the Constitution in a number of ways:

- In 1913, control of the money was handed over to a private company, The Federal Reserve. For details, read The Federal Reserve. This is a complete horror and severe violation of the Constitution.

- Soon after 1913, the paper money was disconnected from gold or silver. This means one could no longer trade in paper money for gold at the bank. The old US dollars were called “silver certificates”. This means they were just substitutes for silver. This was stopped.

- Soon the government started spending much more money than it had by just printing paper money with nothing tangible to back it up. This is called fiat money. At the present time, America is in debt by about 30 trillion dollars and it increases every day.

All paper money in America, by law, must be redeemable in gold or silver. This was the case for years. Old dollar bills printed before 1913, or perhaps even later, all were required to state “Redeemable in Silver”.

You might ask, how is it possible that the government can just ignore the Constitution? The reasons are:

1. The presence of the alien force on earth called the thugs, satans or rogues. They are experts at ruining nations. They rape, beat, kill and corrupt whomever they wish to achieve their goals. They are extremely high technology and extremely secretive about their activities. For details, read The Rogues.

2. Due to #1 above, most people are totally ignorant of the Constitution. It is taught poorly if at all in public school and it is not taught correctly to attorneys.

The rogues teach that the Constitution is “variable” or “living” or can change. This is complete garbage, but they teach it to attorneys and they control the schools and the judges and legislators.

The only way to prevent inflation, as far as I know, is to have an honest government that is not permitted to print endless amounts of money. The only way to do this is to have a gold standard so that the government is forced to put some value behind their paper money.

IV. OTHER TOPICS

THE ACTUAL SITUATION TODAY

Today’s inflation is unique, in a way, because almost all nations are inflating their money. It is like a competitive race to see who can destroy the currency fastest. This is horrible. However, it has some interesting consequences.

If only one nation inflates its money, that nation would be doomed. Many people say this about the USA, for example. However, today most nations are inflating their money and the USA is just starting to ‘go with the crowd’.

Therefore, I believe the doomsayers are somewhat wrong about the downfall of the USA.

Worldwide inflation tends to “spread the misery” somewhat, and it will be the worst in the nations that are most fiscally irresponsible.

WHY ARE SOME PRICES LOWER TODAY?

Inflation has caused the price of land, cars, houses, energy and other things to rise dramatically over the past 100 years or so. However, a few items seem to be getting less inexpensive today, like computers and even clothing. This is occurring for several reasons:

1. New technology has dramatically reduced production costs in some areas. This helps keep some prices low.

2. Innovation reduces the cost of certain items like electronics. For example, today’s computers are simply much more advanced than those of 40 or even 20 years ago. We get more for our money.

3. More goods are made in low-wage nations. Low wages paid to workers in nations such as China, India, Vietnam and others also help keep prices down.

4. Our trading partners such as China, Japan, Canada and Europe are all inflating their currencies. In fact, some are doing so faster than we are in the United States. We are in a curious situation with competitive destruction of the currencies by a number of nations. This keeps the cost of many foreign goods low.

5. As more nations become developed and join the family of industrializing nations, more goods and services are being offered. In this sense, the larger amount of printed money is not chasing the same number of goods and services. Instead, the number of goods and services is also increasing. This offsets some tendency for inflation.

6. Some goods are not as high quality. For example, I have some older bed linens, for example, and even coats that were left to me by my parents when they died. They are much better made than most linens today, and have lasted far longer.

This concept is sometimes called planned obsolescence. It wastes a lot of resources and creates a lot of extra garbage, at times, as people throw away equipment that breaks quickly, for example.

BENEFITS OF INFLATION

Inflating the money is a horrible crime. However, as with most things in life, it can have a few hidden benefits:

It is bringing many people back ‘down to earth’, so to speak, forcing them to think about their purchases, their investments, and what is real and what is fluff in their lives. This is actually a spiritual benefit that unfortunately usually requires some pain and deprivation.

Inflation often follows a period of prosperity where people get lax and allow the government to violate the law, as has happened in America. So it is a wakeup call for many people that eventually is helpful for society if it can return to sound monetary and governmental policies.

Inflation tends to teach a good lesson, which is: Do not trust the government. This is a lesson most Americans and others around the world need to learn. It was clear to the founders of America, but liberal teachers and leaders have convinced many people that government is benign, when it is never the truth.

George Washington said “Government is force. It may be necessary, but government is never good.” Thomas Jefferson expressed the same idea when he wrote: “That government is best that governs least”.

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