Last week, President Donald Trump pushed for another round of economic stimulus, including a payroll tax cut. The question is who’s going to pay for it?
This new stimulus spending would pile on top of the trillions already approved. The U.S. Treasury projected that it would borrow $2.99 trillion in the second quarter fo this year. The Trump administration also plans to borrow another $677 billion in the July-September quarter, bringing the total fiscal 2020 deficit to $4.48 trillion. Meanwhile, The national debt hit $25 trillion just a few weeks ago and it’s already knocking on the door of $26 trillion. By the end of the fiscal year, it will likely be well north of $27 trillion and climbing.
Remember when Republicans opposed stimulus? Remember when conservatives railed against government borrowing and debt? Remember the Tea Party?
Today, virtually everybody agrees that trillions in government spending is “necessary” to boost the economy through the COVID-19 government shutdown – Republicans and conservatives included. Everybody is a Keynesian now.
But again, nobody seems to be asking the operative question: who will pay for all of this?
I can answer that question: You will.
So, enjoy that stimulus. You will either pay for it in higher taxes real taxes or inflation — probably both.
If Joe Biden wins the White House and the Democrats take control of the Senate, you will almost certainly see tax increases. And even if Trump wins, fiscal realities will likely necessitate some increases in taxes. But let’s imagine you somehow manage to evade the federal taxman. You’re still going to pay an inflation tax.
And it will be steep.
When the economy started to tank as governments shut things down in response to the coronavirus, the Federal Reserve fired up the printing press and created trillions of dollars out of thin air to monetize the debt. In practice, the central bank buys U.S. Treasury bonds on the open market with newly created money. It holds those bonds on its balance sheet and the newly minted dollars go into circulation. This increases the money supply.
An increase in the money supply is by definition inflation.
When you boil it all down, the Fed can’t do anything other than print money. It doesn’t manufacture any products or provide any services. It just creates inflation and devalues the dollars already in circulation. In effect, prices ultimately have to rise so the larger quantity of money can buy the same quantity of goods.
This devaluation takes away the spending power of the dollars you already have. It punishes savers. And it ultimately serves as a stealth tax.
FInancial analyst Peter Schiff summed up what is happening in a recent podcast.
“The way we’re paying for all this government is a massive inflation tax. The government is going to steal the purchasing power of anybody who has U.S. currency. And it’s that stolen purchasing power that everybody is spending now.”
When all is said and done, you will end up with a lower standard of living. The effect is no different than if the IRS pulled the dollars right out of your bank account. One way or another, you pay.
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