The New Great Depression, Part II: The Fed’s Silent Tax

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Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in [economic] output.” – Milton Friedman

Modern times call for modern solutions. Unprecedented times call for unprecedented measures. 

However, when looking to history, we may be shocked to discover some things we thought were “modern” or “unprecedented” are, in fact, neither modern nor unprecedented.

In part one of this series, we discussed, among other things, Newsweek’s documentation of an international study stating, scientifically, there is no clear benefit between lockdowns and other, voluntary measures, regarding our current pandemic. Why still the lockdowns, then?

For Biden and his Administration, my disdain is not out of personal animus. He and his team are not the people we need for our current crises, and their policies prove the point. We are all Americans and on the same ship. So, I pray it is steered in the correct and proper directions, always. Directions that will keep these United States secure, prosperous, and most importantly, free. We are two weeks into this new administration, and it is readily apparent they have no want to do what is best for “average” American citizens. 

For our looming New Great Depression, to discuss the future, we must look to the past. Though we are taught in schools and elsewhere the stock market crash led to the Great Depression, it is a well-established economic fact that the crash did not lead to the Great Depression.

It was merely an effect.

Bad monetary policy by the Federal Reserve caused the depression. The stock market crash led to a run on the banks, to which the Fed, by not flooding the market with money to cover reserves, catapulted a failure of banks nationwide.

In fact, the Federal Reserve, in the exact moment logic, sound banking, and economic policy would indicate the pressing need for proliferating the money supply—the “expert” economists did the exact opposite. In short, when the economy and banking system needed more money, the Federal Reserve took money away. 

On top of bad monetary policy by the Fed, the Hoover and Roosevelt Administrations, and Congress, implemented bad tax, economic, and fiscal policies which prolonged the Great Depression. Far beyond what free-market principles would have endured. Because of government failures, many millions suffered, a lot more than was necessary.

Today, we find ourselves in much the same situations, though, only in reverse. However, we are in an unprecedented amount of government (public) debt, with the latest measures from the Federal Reserve Bank of St. Louis, reporting a total of $26.95 trillion. This measure does not include the latest “stimulus” bill. With Congress passing another measure this week, for a whopping total of $1.9 trillion. This brings our total public debt to $29.15 trillion dollars. Biden promised these are just “down payments.” They seem more like pretexts for hiking taxes, for generations. Something counterproductive.

This amount of public debt, when compared to 2019 Gross Domestic Product, means our government is 136% debt-to-GDP ratio. With total 2019 tax revenues being $3.5 trillion, this means our government has a 833% debt-to-income ratio.

You tell me, would you be able to live, prosper, and handle life properly by being 833% in debt compared to your income? Sure, if you’re able to print money. However, the vast majority of us do not have that ability. In fact, only one entity does. 

Our New Great Depression does not have to be characterized with much of the same horrors faced during the 1930s. Luckily, Biden is inheriting an economy that, since the beginning of the pandemic, has had a robust recovery in labor and replaced almost 16 million of the 24 million lost jobs.

Really, all his administration needs to do is, not mess it up. 

But starting on day one, and going through his first weeks, through executive action, Jobless Joe Biden managed to, in record fashion, kill off millions of jobs. What the “expert” talking heads on MSNBC, Fox, CNN, etc. miss in their analyses is basic economics, as usual. The killing of the Keystone Pipeline and halting more permits for exploration on federal land is death by a thousand cuts. It is not only the construction, engineering, and other companies directly affected by those halts. All industries which rely on the price of oil from this pipeline will be affected. Higher prices lead to less demand. Less demand means less money spent. One person’s income is another person’s spending. 

The enhanced federal unemployment benefits will lead to a lagging labor market, but mark my words, the unemployment rate will be reported as either going down or at least, staying the same.

The problem the media will never mention when it comes to jobs reports is the labor force participation rate (LFPR). That is the amount of able people in a country participating in the labor force. For contrast, unemployment is the amount of people in the labor force, divided by the amount of people unemployed looking for jobs.

For an example, in California, you need only a $42,000 income to be able to reap the maximum unemployment benefits of $450 a week. This new stimulus bill will make unemployment payments $3,400 a month, or $21.25 an hour. This will deter people from looking for jobs, keeping real employment suppressed. This is not even to only discuss the economic detriments, but also social and moral. The government making small businesses compete with it for paying people is disgusting. Moreover, the government making people dependent on the government for livelihood, is, quite literally, the essence of communism. It seems to be the Government vs We the People. 

Unfortunately, none of what has been mentioned so far is the worst part. The worst part is something most people will not even notice, will be told is not an issue, but will be ravaged by it: inflation. One of the world’s most intelligent economists once noted, “inflation taxes both the rich and the poor.” 

Inflation is commonly understood to be the general increase in a nation’s price level. This is true. However, what is not commonly known, especially, or at least seemingly, in Congress and most elsewhere, is that inflation is also the increase in the quantity of money supplied past its demand. 

Back in March, the Federal Reserve injected trillions of “liquidity” into the market to stabilize volatile markets. It worked. They show no signs of stopping. Since March, the Federal Reserve has continued to pump unnecessary money into the banking system. The money supply, year-over-year, has grown 37.08%. 

In economics, it is universally accepted that inflation takes six-to-nine months to have an effect from the day the money was printed and put into the monetary supply. As with every other commodity, money, loses its value when there is more in supply than is demanded. That is, it takes more money to purchase less goods. What this really is, is a silent tax on income, wages, and savings. What that means is the value of your dollar will plummet, in due time, according to the oversupply of money in circulation, courtesy of the Federal Reserve. 

When we are facing an economic catastrophe, due to unprecedented and unnecessary government measures, making the tool which is used in economic transactions less valuable hurts everyone. Rich and poor alike. What is the point of having more money if you only are able to buy less stuff? This silent enemy will not strike all at once. It will be a slow death by trillions of cuts. 

Our New Great Depression will be characterized by an illusory appearance of wealth, while the actual wealthy increase their stake. For a party that loudly decries income inequality, the policies they implement sure do promote the opposite. 

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