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  • the hidden inflation tax 0 comments
    Aug 4, 2009 9:24 PM
    The money supply is increasing, the Fed has deposited a huge number of dollars in accounts at the banks. Yet there is no apparant increase in inflation. This is because banks the are afraid of credit risks and aren't lending out their huge piles of money. When things turn around in the economy and credit risk subsides, the banks will start lending agian and inflation will kick in.

    The Hidden Inflation Tax

    The government knows that the current course of borrowing to meet spending needs is unsustainable. They have two unpopular choices:

    1. Raise taxes.
    2. Make spending cuts.

    There is. however a third choice.
    Print a huge pile of money, this meets the government spending needs to some extent and also ignites inflation. Once the banks start lending out this money, inflation kicks in. Assets rise in price, and these capital gains can be taxed. The economy kicks in and ramps up to high speed, wages and profits pick up, and these earnings can be taxed.  Eventually, inflation shows up (it is a lagging indicator).

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