Hidden tax on the poor and middle class?

Assume a world with 10 equally valuable things, and $10 dollars around. Here, each thing will cost $1. If the Fed prints another $10. Now there's $20 around, and over time, each thing will be cost $2.

If the new $10 came into being by everyone who had $1 one day, woke up the next and had $2, it would not matter. But that's not how the current Fed works. Instead, the money is "handed" (In a roundabout way, but still) to the Bankers. So, say, if in the beginning, $5 of the original $10 belonged to the bankers, and $5 belonged to non bankers. Meaning everyone else could buy 5 valuable things, while the bankers could buy the remaining 5. After the printing, $15 belongs to the bankers, and still only $5 to the non-bankers. Now, without doing anything, the bankers can buy 7.5 of the valuable things, while non-bankers can only buy 2.5. So, even without directly confiscating anything from the non bankers, the end result of the inflation is still that half of non bankers' real wealth are transferred to bankers.

The above is extremely oversimplified, as in reality prices don't immediately adjust, not everyone is either a banker or a non banker, and the Bankers don't get all new money handed to them as an outright gift. But it does illustrate how a system that disproportionately favor bankers by giving them preferential access to new money works as a tax on everyone else to the bankers benefit.

which explain the situation.

Quick little scenario that a lot of prudent savers face, particularly over the past 30 years or so.

You spend 5 years at your job and you make your car and house and grocery payments out of your disposable income.

Over those years you managed to save 50,000 for a nest egg.

over those 5 years, as govt blows its budget caps by multiple amnts and yearly it grows almost geometrically, the value of the dollar drops 10% of the value it was worth 5 years ago.

In this scenario, you still have 50,000 in the bank, no one has actually touched the figures in your account. but the real value of that money youve saved is now actually worth 45,000.

This is why its 'hidden', because your bank figure readouts dont actually change, but what you can buy with it over time decreases (under keynsian economics, this i believe is an unavoidable and 'healthy' consequence given the inflation is moderate and constant).

So the dollars in your pocket arent taken, but the value of your dollar is stolen, so that the govt can buy what it needs today, and over time, the money in your pocket suffers the consequence.

Now if you want a lesson as to why you cant freely print dollars, just google hyperinflation and nations its inflicted in recent times and look for how much a loaf of bread would run you in such a situation. (note that wages will never rise to match inflation as labor is the most expensive resource and is most likely the reason the money is being debased in the first place).

matter if your income is $1M/year? You can only eat so much bread no matter what your income is. What if you earn $15,000/year? Bread doubling in price would be a much bigger percentage of total income for a lower wage earner than the fat cat. If inflation goes to 20%, the lower wage earning guy is wiped out. He cannot keep up, whereas the fat cat can easily adapt to the higher prices.

http://www.allbusiness.com/legal/energy-utility-law-fuel-tax...

the hidden tax is on everyone.

when you're rich, the hidden tax means you have a few less toys.

when you're middle class, the hidden tax means it'll take both parents working just to pay the bills. sacrifices in the areas of education, investments, health coverage, legal representation, etc...will have to be made.

when you're poor, you get less to eat, no AC in the summer, and little heating in the winter.

inflation is a hidden flat tax. it doesn't progressively hit the rich the hardest. it means the people with the least amount of money are hit the hardest, for example the price of bread and energy skyrockets.

Your comments were very helpful!

I try to stress this point when trying to wake people up. It seems to work quite well if you can get them to understand it.

your money as a % of the total. If you have $1 and there are only $10 total you have 10% of the money, and therefore hold 10% of the purchasing power. If the federal reserve prints $10 more dollars the % of your $1 is now 5% and you hold half as much purchasing power as before. Not a huge deal, you have the same $1, except that the markets will react to this inflation of the money supply and prices will go up. It now becomes a bigger deal since your $1 can only buy half as much. The people who get the money that has been printed first as dictated by the Fed and are able to spend it before prices react to the inflation are the huge winners. So the Fed decides who the big winners are, and as someone pointed out the wealth of the nation hasn't increased, it has just shifted that wealth from the people who didn't get the new money (us) to the people that did (wall st/bankers/the fed wont tell us so we don't know for sure who all else).

Q: "Why can't money be created out of thin air without bound?"

A: Every dollar "printed" by the federal reserve takes its value from every other dollar in circulation. Currency only represents wealth. It is not wealth itself. You could double the amount of currency, but the wealth of the individual/nation/world doesn't change; only the amount of currency that represents one "unit" of wealth changes (increases), resulting in higher prices.

The poor have no assets to protect them against inflation.

The middle class have some assets to protect them against inflation.

The rich have most of their assets protected against inflation.

The wall street bankers and biggest businessmen are protected against inflation and receive the newly created money through government contracts and other less direct means.

Consider this: you are poor and you would like to save up cash for a large purchase. As you save money there can reach a point when the cash you have in savings loses more value than what you scrape together each year/month (in other words the object you are saving for appreciates in dollars due to inflation), you may never be able to reach your goals.

Sure you can get a loan (if you have good credit), but if you are that cash strapped in the first place you lose your job and you could be worse off than before.

b4l8r

and i cant stand the arrogance of the wall street crowd.they make money but produce nothing positive in return, just speculating shifting paper. if you make a million dollars a year and inflation goes up 10 percent you still have a net 900k your not starving by any means however if you make 40k and inflation is 10 percent your purchasing power is now 36k its like a 4k pay cut. most people making 40k need every penny to live there is nothing left over the guy making a million will complain a little which they do i here them all the time but you will find them tonight dining out for a couple of 100 dollars while that other family say i really dont want to spend that 50 dollars at tgif i could use that to pay a phone bill. if you have hyperinflation than the rich guy gets it to.

Inflation taxes everyone who holds dollars. When the Federal Reserve creates credit or money they steal that value from the dollars already in circulation. This is a hidden tax, but is really robbery and theft. The people who have access to this credit and money get it with very low interest and then they loan it to the lower and middle class citizens with higher interest rates, the lower the class, the higher the interest rate. The lower and middle class citizens don't have access to special lending facilities or any other fraudulent program the FED manages so they get put in a debt trap by borrowing value from institutions that stole the value from them in the first place.

This is the main reason why we have such a gap between the poor and the rich. The movement against the FED is one that the liberals should wholeheartedly join because it directly addresses the reasons of why so many people are so poor and why so few people control the majority of the US wealth.

Those who access the money first have an advantage over those who receive it last. The politically well connected, large corporate borrowers, and the banking/finance industry get first dibs on the newly created money. Only as the prices for goods rises as demand increases relative to supply does the money trickle down in the form of increased nominal wage rates. Meanwhile the economy has reorganized itself in a manner where production is shifted to cater to the well connected as compared ex ante. Real wage rates for the late receivers of money fall and their standard of living goes down as compared ex ante. Increasing the money supply via governmental intervention is a zero sum game with winners and losers. Under commodity money systems, increases in the commodity allow for non-monetary uses of the commodity to have that factor price reduced as supply increase and as such is a positive sum game. Really this is econ 101, but Keynesians ignore that which is unseen.

A good explanation of Richard Cantillion's Observations
http://mises.org/journals/qjae/pdf/qjae9_3_3.pdf

the government makes promises to the American people to provide services and benefits.. IE. Social security and medicare, welfare. Some people who see an easy way out and do not want to work take advantage of the system. the politicians receive the benefit of being reelected by those who like to receive aid for free. the governments expenses go up. the government can not keep raising taxes on those who produce because that part of the populace gets angry. so what the government does is barrow (print) money to pay its obligations.. the more money printed, the less each dollar is worth because now there are more in the system. This is the hidden tax. what they can not steal from you in direct taxation they steal from you by counterfeiting dollars to pay their bills.. this makes the dollars you worked for lose purchasing power.. this is why what cost 1.00 in 1913 costs 97.00 today. it is a slow gradual form of taxation but the problem is the governments obligations have grown so much that now the there is not enough money to to pay everything.. so they will print more and sooner rather than later, destroy the currency. BUY GOLD AND SILVER. it your only protection.. as for the rich... they always able to have enough money to buy what ever they want. they can raise prices of goods and services to accomodate themselves.. the working man has a hard time getting his pay raised, especially in hard times like this.. all the while the price of things you need to live keep going up because the government prints more and more money to pay is "obligations" or entitlments..

A prudent man foresees the difficulties ahead and prepares for them; the simpleton goes blindly on and suffers the consequences. Proverbs 22:3

They take the money and buy real tangible assets that produce income and pay the middle class and poor with the new money. After 10 years the poor workers have worthless dollars and the friends of the bankers have a working asset that produces income and is real.

They get to use the money first before it is devalued.