New spending is a new tax

The new “Save America” $1.9T spending bill is also a $1.9T tax (as in an immediate tax). Why? One, the U.S. government is already over budget so it must “borrow” money from Federal Reserve. Two, Federal Reserve does not have any funds, as I’ve stated, and Federal Reserve only creates money for loans. The value of the new $1.9T dollars comes from the dollars everyone has in their bank accounts. It’s as if you own stock in a company, and the company issues more stock. Your stock is worth less.

So the government, in essence, just passed a $1.9 Trillion tax. You’ll notice the impact gradually over the next months as prices rise because your dollars — your paycheck — are now worth less.

Is it a “Save America” bill? Well maybe for part of America, the unions with squandered pension funds, over-budget blue states that shut down their economies to increase the change of ousting Trump, and less-needed transit systems, that will get most of the money.

Note, this tax is not like others you can see on paper when you pay them. This tax is pulled out of the money you have in your bank account — a much more effective and stealth system. You have the same amount of money, but it’s worth less.

You made $100,000 on your home sale. Are you richer?

2010 - You bought a home for $100,000 and your favorite sandwich costs $5.

10 years later…

2020 - You sell the home for $200,000 and your fav sandwich costs $10.

(1) Did you make any money?
(2) Did you increase your wealth? Are you richer?

Answers:
(1) Yes
(2) No

2010 - $100,000 is worth 20,000 sandwiches ($5/each)
2020 - $200,000 is worth 20,000 sandwiches ($10/each)

You made $100,000 dollars so you made 100,000 more money/dollars.
But you cannot buy more sandwiches. Your money still buys the same number of sandwiches: 20,000 sandwiches. Your wealth did not increase.

But you actually reduced your wealth because the gov't will tax you at maybe 20% on the dollar profit.
Your dollar profit is $100,000, which means you pay $20,000 in taxes. You're left with $180,000 which can buy 18,000 sandwiches.

Your wealth was reduced by 2,000 sandwiches, even though you had a dollar profit (after taxes) of $80,000.

It's the consequences of inflation (devaluation of the dollar).

Postage stamps to cost 10 percent more, due to lower-value dollar

The dollar-price for a first-class postage stamp will rise 10 percent next year! That means the dollar will be worth 10 percent less than in stamps. If the dollar is worth 10 percent less, will thou get a 10 percent salary increase? Thy employer is paying out dollars that will be worth 10 percent less, at least in stamps.

Of course if thou uses something other than dollars as a store of value, then the dollar-price may not be important.

A headline from AL.com, says, “Stamps set for largest-ever price increase in January 2019”. It may be the largest increase in cents, but is it the largest percentage increase? No. Later, the journalist reveals that the 1991 increase was 16 percent.

As the dollar continues to be debased/diluted, the net increases will be larger, but the percentages may not. As this continues, at some point, the price of the stamp will rise from $1.00 to $1.10, a whopping eight cent increase, but really just an eight percent rise.

Similar journalistic shenanigans occurs with stock market rises and falls. A 300 point increase or decrease sounds like a lot until the article reveals it is a one percent change.

One must quickly acclimate to the new larger numbers tossed around or focus on percentage changes.

Still, the postage stamp price is going up 10 percent. That is quite a jump. The rampant increase in dollars during the past five to 10 years is finally hitting us, hard.

What’s the solution, store thy wealth in non-dollar assets. Before a purchase, convert into dollars.



The last time inflation was this low, there was a recession

Back in 2006, inflation slowed dramatically to 2.4 percent and was 4.4 percent in 2008. Then a recession hit, and a new administration came to power. Inflation dropped significantly this year and now sits at 4.1 percent, about the level back in 2008, just before the recession. Bill Maher recently quipped that he wanted a recession as a means to push President Trump from power. Others may agree with Bill and are putting the gears in motion. See table below showing the growth in the quantity of dollars (aka inflation and aka money supply).

Table showing inflation rates from 2003 until 2018.

I am also cheering the lower inflation rate since creating new dollars steals value from all existing dollars. There is less theft.

Yet, I also dislike wild swings in the quantity of dollars as that confuses people. High inflation can lead to energy going into a specific business sector, then a sudden drop can cause those businesses to fail, as they had mistakenly planned on persistent easy money and loans, and the resulting high spending.

It’s best to have zero inflation. If we can’t get that, let’s have steady low inflation. But I do not want wild swings in the inflation rate and especially a swing designed to influence an election.

Underlying data:

Data for FRD Quantity - 2018.08 v01

Updated inflation charts. Inflation at 7.3%.

The annual inflation rate of Federal Reserve Dollars is 7.3%. As you can see in the chart, usually Federal Reserve reduces the inflation rate after a series of high increases, but since 2014, the rate has remained level at about seven percent. Look for prices to continue to rise as the value of the Fed dollar falls. Learn more about these charts.

Annual changes in Fed Reserve dollar quantity - through 2017 August Line chart of Fed Reserve Dollar Quantity from 1959 to 2017, with callouts showing when total dollar quantity doubled. Current total is 12.7 TrillionPie chart showing components of Federal Reserve Dollars - 2017 August Table - Raw data showing composition of Fed Reserve Dollar total, from 1995 to 2017 (August)

Updated inflation charts

The inflation charts page has updated inflation data as of July 2017. Inflation is at 7.5 percent, based on revised Federal Reserve data. The rate appears steady. I was expecting the rate to decline so that ‘they’ could trigger another stock market crash, but maybe not. Still, a 7.5 inflation rate means…the value of the U.S. dollar has or will be worth 7.5 percent less than what it would have been worth if Federal Reserve and the U.S. administration had not created more dollars. This is despicable.

Here are the updated charts:

Annual changes in Fed Reserve dollar quantity - through 2017 July

Line chart of Fed Reserve Dollar Quantity from 1959 to 2017, with callouts showing when total dollar quantity doubled. Current total is 12.6 Trillion

Table - Raw data showing composition of Fed Reserve Dollar total, from 1994 to 2017 (July)

Pie chart showing components of Federal Reserve Dollars - 2017 July

For more details, visit the Charts page.