LittleGreenMan
Well-Known Member
Milton Friedman postulated, and I think proved that 100% of inflation was the product of government spending. All of govt spending is functionally just shifting money around through a bunch of hands, each of which taking a handling charge. That’s different from money spent in the private economy. People use their money to buy some combination of materials, labor & G&A (General & Administration = overhead: rent, heat, lights, insurance, taxes, etc.) and earn a 10% profit upon which they pay taxes. I make balls for pool tables that cost me $72. You buy my stuff for $100; I pay $72 cost of sales, $18 G&A, have $10 profit, less $2 in taxes. I do that over & over & and accumulate profits. All the people I buy materials from do the same thing. All my workers use their wages in gas stations, grocery stores, lumber yards, bars & pool halls, (You own the pool hall) each of which make about the same margin, 10%. Every time a dollar changes hands somebody makes 10 cents profit and the govt gets 2 cents. (20% is the lowest overall tax rate and is generously too low in this example).
Elementary math tells you that the net value added by production of goods & services of 10% is more than matched by the govt’s take. Each time the buck passes hands they hit it again. No matter how many transactions create value and increase the GDP (Gross Domestic Product), the govt ‘s take never decreases. Some of the Govt’s revenue re-enters the economy to buy housing for unwed mothers and civil servants' wages & benefits, thence producing profits for the providers of goods & services they buy. Inherent in each step of govt handling is the absence of profits/added value. To that extent, a subtraction from GDP is something greater than minus 10% every time a dollar is shifted from department to agency to bureau to service to authority, ad infinitum. Each step is profitless and approximately all inflationary.
Now, ask yourself what the inflationary effect is of paying interest to foreign and/or US Bond holders, and consider that each dollar paid to bond holders is created from whole cloth by the Federal Reserve Board since the govt has not paid down the National Debt from tax receipts since the 1960s. For a teeny-weeny period in the mid-90s a balanced budget was run for a year or two. Each of those man-made-up dollars dilutes the dollars that are created to recognize the value added/profits actually earned in the economy. Inflation % equals the negative difference between value added and surplus dollars created by govt.
COVID spending in ’24 will be unchanged from ’22 & ’23, therefore inflation will be net unchanged, as in won’t change downward. The fact that it seems to have slowed is merely a reflection in the huge reduction in demand that has occurred in the same period. Sooner or later that giant bubble of emptiness will rise to the surface and the reduction in goods available will spark another round of impressive price increases. For instance, we need an increase in housing to match the increase in population, or else. Inflation of the 60s passed thru the 70s and didn’t subside until the 80s. Do you think the bunch in charge now are better keepers than those in charge for that earlier 20 year period?
Elementary math tells you that the net value added by production of goods & services of 10% is more than matched by the govt’s take. Each time the buck passes hands they hit it again. No matter how many transactions create value and increase the GDP (Gross Domestic Product), the govt ‘s take never decreases. Some of the Govt’s revenue re-enters the economy to buy housing for unwed mothers and civil servants' wages & benefits, thence producing profits for the providers of goods & services they buy. Inherent in each step of govt handling is the absence of profits/added value. To that extent, a subtraction from GDP is something greater than minus 10% every time a dollar is shifted from department to agency to bureau to service to authority, ad infinitum. Each step is profitless and approximately all inflationary.
Now, ask yourself what the inflationary effect is of paying interest to foreign and/or US Bond holders, and consider that each dollar paid to bond holders is created from whole cloth by the Federal Reserve Board since the govt has not paid down the National Debt from tax receipts since the 1960s. For a teeny-weeny period in the mid-90s a balanced budget was run for a year or two. Each of those man-made-up dollars dilutes the dollars that are created to recognize the value added/profits actually earned in the economy. Inflation % equals the negative difference between value added and surplus dollars created by govt.
COVID spending in ’24 will be unchanged from ’22 & ’23, therefore inflation will be net unchanged, as in won’t change downward. The fact that it seems to have slowed is merely a reflection in the huge reduction in demand that has occurred in the same period. Sooner or later that giant bubble of emptiness will rise to the surface and the reduction in goods available will spark another round of impressive price increases. For instance, we need an increase in housing to match the increase in population, or else. Inflation of the 60s passed thru the 70s and didn’t subside until the 80s. Do you think the bunch in charge now are better keepers than those in charge for that earlier 20 year period?
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