“What is the difference between banking and politics?” a tip old joke goes. “Banking is borrowing money from the public and lending it to your friends. Politics takes money from the public and gives it to your friends. ”
However, the current US government has a new twist on this: Politics borrows money from the Federal Reserve and gives it to your friends. Wise, right? The Fed can print all the money it wants and the government can borrow it and give it out. Except that you eventually find out that this weakens the nation’s currency and brings high inflation.
So now we have ‘Biden Inflation’, which I have calculated to run at an annual rate of more than 7 percent from the end of 2020 to June.
Let us state the obvious facts that everyone knows about an inflation rate of 7 percent. This means that if you are a worker who received a pay rise of 3 percent, the government has caused your actual salary to go down by 4 percent – that is, plus 3 percent minus 7 percent = minus 4 percent. If you got a 2 percent increase, the government cut your real salary by 5 percent.
If you earn savings thanks to Federal Reserve policies, the average interest rate on savings accounts of 0.1 percent and then with an inflation rate of 7 percent has taken the government away 6.9 percent of your savings account.
If you are a pensioner with a fixed pension or annuity, the government has cut your pension by 7 percent.
In a sound money regime, politicians have to tax a lot to be able to spend a lot. They then have to worry about whether workers, savers and retirees will vote for those who escalated their taxes.
With the borrowing from the Federal Reserve ploy, politicians avoid the pain of having to vote for increased taxes, but they still enjoy the joy of voting for their preferred expenses. Nevertheless, all the money that politicians give to their friends is actually taken from the workers, savers and retirees. It has just been taken in a difficult way with the help of the Fed.
In an earlier generation when the Federal Reserve was led by William McChesney Martinfor example, the public discourse was aware of this. Martin, who was chairman of the Fed from 1951 to 1970, called inflation “a thief in the night.” Him too said, “We can never regain purchasing power for the dollar that has been lost.” This was long before the Fed news today, which pretends it inflation of 2 percent forever is “price stability”.
But not even today’s Fed can weakly face 7 percent inflation. So while it is still planned to create perpetual inflation, it repeats and hopes against hope that the very high inflation is ”passing. ”
No matter how transient the current high inflation may be, the money from workers, savers and pensioners is still taken and will not be given back. If inflation falls, their money will still be taken, just at a lower rate. If inflation rises rapidly further, as it can, their money will be taken faster.
William McChesney Martin was so right.
Alex J. Pollock is a prominent senior emeritus at the R Street Institute, former deputy director of the U.S. Treasury’s Office of Financial Research, and author of “Finance and Philosophy – Why We’re Always Surprised.”
Disclaimers for mcutimes.com
All the information on this website - https://mcutimes.com - is published in good faith and for general information purpose only. mcutimes.com does not make any warranties about the completeness, reliability, and accuracy of this information. Any action you take upon the information you find on this website (mcutimes.com), is strictly at your own risk. mcutimes.com will not be liable for any losses and/or damages in connection with the use of our website.