Inflation: The Worst Tax

By Tommy Leung on 05/21/2008 in Politics

I had recently read a news article about a bill in the Senate that is designed to solve the root of the current housing crisis: foreclosures. My initial commentary on that article was not flattering to Senator Dodd and Senator Shelby. The fact of the matter is that these two gentlemen are missing the real root of the housing problem: inflation.

The value of real estate had skyrocketed in the years after the Tech Bubble burst. What Alan Greenspan did at that time was cut interest rates to ridiculously low levels in order to avoid a “recession.” I would argue that we didn’t avoid the recession, we just delayed it. The act of cutting interest rates is the same as printing new money. When Greenspan cut rates after the tech bubble, this new inflation found its way into real estate and ignited a boom in real estate like we had never seen before.

People were making a killing on real estate. Fast forward to today, the housing market is in trouble and the value of real estate is on a decline. This time, Ben Bernanke is the man behind the printing press and he is working as hard as he can to prop up the value of houses. In doing so, we are now seeing double digit percentage increases in the price of food and a huge increase in the price of gasoline.

Price increases are going to permeate into almost every part of our lives. Unfortunately, wages are historically the last thing to increase in a time of inflation. There is little we can do as the supply of money is in the control of the privately owned Federal Reserve and our politicians are coming up with more and more socialist programs that are supposed to solve these problems. They fail to realize it was socialism that led to these problems in the first place.

Republican Presidential candidate Ron Paul puts it best, “you can’t solve the problem of inflation with more inflation.” This house-of-cards economy that we have been living on is destined to collapse. Where we were able to avoid the effects of inflation on food, gas, and everyday necessities throughout Greenspan’s run, it appears we are not going to be so lucky this time. Not only are we in an economic crisis but we are also in a war that costs us billions a day in borrowed or freshly printed money. The former will have to be paid at some point either through direct taxation or with more printing of money. Taxes are politically unpopular so chances are: we are going to see the latter.

In the article about the housing rescue bill, Senator Shelby says that this bill is a victory for the taxpayers because they won’t have to foot the bill. That statement is hysterical. The plan is to have Freddie Mac and Fannie Mae guarantee the bad mortgages. Freddie Mac and Fannie Mae are both government backed institutions so if they need a bailout, the printing presses will roll.

So what this really means is that we will be taxed indirectly through inflation. The government won’t be robbing us in broad daylight and take money directly out of our paychecks. Instead, the price of goods will go up. This will increase our cost living. In turn, our standard of living will be lowered. Government will still get the extra money that it would otherwise have had to tax us for.

We are already being taxed to death from a high income tax and a laundry list of excise taxes. The only reason why government needs all this money is because it is too big. Great civilizations have always collapsed because they destroyed the value of their money. We are working towards that right now. Inflation is going to hurt the middle class the most and most likely end up destroying the middle class. Those on fixed incomes will have a very hard time making ends meet as their cost of living skyrockets.

The Great Depression is referred to as the worst economic time in American history. That may be so but, the Great Depression was a period of deflation. If it was bad back then with prices staying low, imagine what we are going to have to deal with today with increasing prices. It won’t be pretty. Perhaps we will not soon forget the evils of inflation after this is all said and done.

By Tommy Leung