Inflation is inevitable given that the government has been printing huge amounts of money while borrowing more in order to continue spending money it doesn’t have. The value of the dollar will be further eroded, with the day of reckoning postponed only because things are worse elsewhere at the moment. Everyone knows this, but what may be less apparent is that the effects of inflation are already here, it just is not immediately obvious. It is masked by government-created economic distortions, structurally built-in, which are expanding like a silent bubble on its way to bursting. While evident in high gas prices and food prices that are about to take off, it is deeper and more sinister. It is like a mirror opposite of inflation that has already devalued money, and we are already paying for it.
When there is inflation money is worth less. That is elementary. But although there is little apparent inflation at the moment somehow money is still worth less. One way to look at it is what you can earn on your dollars. The government is deliberately depressing interest rates to ridiculously low levels by continuing to print money. This enables it to continue borrowing at bargain rates, which depresses interest rates across the board. As a result the thrifty are penalized with miniscule returns on their savings. When a dollar earns a paltry 1% return what is it really worth? Those who save are already paying the price of hidden inflation by losing what they would otherwise earn were it not for government-induced distortions. This leaves savers, senior citizens, and retirement or pension funds in the hole because the anticipated returns are not being realized. That leaves no alternative to taking on riskier investments to try and earn a decent return. The net result is the same as inflation, where phantom higher returns are earned by money that is worth less and less.
These policies are breathtakingly irresponsible. Yet they are deliberate, resulting in artificially low interest rates to facilitate voracious government borrowing. But sooner or later lenders will stop lending. The President thinks he can reduce the deficit by taxing rich people more. The problem is that there aren’t enough rich people to make a serious dent in the debt, Even if their taxes were completely devoted to it and notwithstanding the more likely scenario that it would simply be spent on more “unmet needs,” there are many ways the very affluent can avoid taxes. They can simply move, like the wealthy are doing in large numbers in France due to the socialist government’s attempt to raise their taxes to a 75% level. The net result of that is that there will be even less money coming in, and the not-so-rich are left to pay for it and the problems only become worse.
The Republicans, on the other hand, want to reduce the debt by promoting growth instead, i.e. creating new wealth, instead of depleting existing wealth. If the economy were growing at a healthy pace it would increase tax revenues. In order to stimulate growth there has to be enough incentive to invest and take risks. High taxes, such as those in France only result in a capital strike, for no one will invest if their earnings are to be taxed away. Then governments try to adjust by providing tax incentives, rebates, etc. to get business to invest, which then results only in crony capitalism and economic distortions.
But whoever wins the election will face daunting challenges due to decades of mismanagement. They may also subsequently pay a political price if policies to truly extricate us from this situation are pursued, for there are no easy solutions. Let us hope we get leaders who will finally behave responsibly, for the alternative is an almost certain collapse.