Subject Areas


Debt and Taxes

Taxes will never succeed in paying debts off

Fiscal reality has been abandoned in favor of inflation

Have you ever wondered why government workers, and others, need to have “cost of living” raises every year? Why did living become more expensive? Did shortages of food or products cause a price increase? Did it become more difficult (and therefore more expensive) to grow and produce? In most cases, the answer to these questions is –"no." The amount of energy and other resources needed to grow or produce has remained relatively constant from one year to the next.

However, because we calculate everything we grow or produce in terms of dollars; it appears that the values of products have increased. In reality, the only the value that has changed is the dollar’s; and it has decreased. The dollar’s drop in value means that it takes more dollars to purchase products, creating the false appearance that the products themselves are more costly than before.   This discrepancy between value and price is caused by inflation.

We are all familiar with this creeping price inflation. In the short term, inflation seems innocuous, and we have learned to live with it.  Prices increases are usually small and spread out over time. Not all of inflation’s effects seem harmful. Iinflation might be the cause of a welcomed pay raise, or higher investment return. Although housing demand has caused some increase in home prices, inflation has been a major factor.

If you own a house, it probably (except for recently) has increased in assessed value; mine did. Over the last twenty-six years, the assessed value of my house increased by an average of $5700 per year. That was great: I owned a real gold mine! Then I realized that all the other houses had also increased comparatively, and I was actually no house richer than I was when I first bought it. The gold mine was in my inflated imagination, not in my house.

Inflation’s long term damage to our financial assets greatly outweighs any perceived gain. Inflation affects almost everything valued in dollars. In 1970, I purchased a $60,000 life insurance policy. At the time, that amount seemed sufficient for four or five years living expenses. Today, although the policy is still worth $60,000, its purchasing power has decreased to about 19% of its original value.

Other investments also suffer. It used to be said that if something was almost guaranteed, it was “like having money in the bank”. We can still say it, but it no longer rings true. If you could earn a four percent return on your funds in the bank, you would be just breaking even with inflation. To add insult to injury, the dividends (non-existent profits) you earned on your money would be subject to taxation.  What a world we live in!

Although most politicians love inflation, they don’t like to talk about it.  If, instead of cost of living raises we called them “inflation” raises, people would probably pay more attention and ask questions like; why? Politicians like inflation (at least up to a point) because inflation creates change (change they can believe in). Inflation requires politicians to vote additional dollars just to maintain existing programs. Politicians like to give wage increases, grants, rebates, and earmarks, which can be camouflaged in inflated budgets. Bigger budgets enable politicians to hide favored projects under the guise of inflationary adjustments.

Our federal financial "experts" appear to think that inflation is good and that a two percent inflation rate is nearly ideal. But consider this: a two-percent loss over 10 years leaves you with dollars worth 20 percent less. The same experts think that deflation is bad. deflation occurs when the dollar actually becomes more valuable. With deflation, the dollar becomes more valuable and we are able to get more for our money. Why this is a bad thing, Ii don't understand, but tend to believe that deflation gives government less excuse for making changes.

Politicians also like inflation because higher wages produce higher tax revenues. Inflation will eventually pushes taxpayers into higher tax brackets without politicians having to vote for increases. Most politicians know that inflation robs citizens of their savings, but believe the government has a better use for the wealth. Politicians also count on inflation to reduce our national debt by cheapening the dollar and defrauding people and nations that bought our bonds in good faith.

Inflation is not our friend: It hampers our financial plans and silently robs of our wealth.