The increased prices constitute a “hidden” tax for citizens and a means of state control of economic activity.
- It doesn’t really sound paradoxical to read in the financial news that the US owes more than 35 trillion. USD or China 12, 58 trillion. dollars (2023) and they haven’t defaulted?
- Who pays this huge bill?
- And how does this relate to the persistent inflation that is crushing Western economies and citizens’ welfare prospects?
Let’s start with the prices Every citizen (mistaken for being financially illiterate!) thinks that greater government control over the economy will limit the rise in prices – and tame the thirst for profit. But it is the worst strategy imaginable. The reason is that interventionist governments never lower consumer prices because they benefit from inflation, being able to breach their fiscal spending commitments by devaluing the currency.
Why is inflation the perfect hidden tax?
The government reduces the value of money through
- the excessive supply of money by the Central Bank, – M2 index,
- issuing more fiat currency units (the central bank currency);
- partially limiting its debt in real terms, and collecting more taxes.
Excessive price increases (hyperinflation) are attempted to be countered by subsidizing a currency that is increasingly losing its value.
That’s why socialism and hyperinflation go hand in hand. Socialism in all its guises sells a false image of a government that can create wealth at will by issuing more fiat currency. Obviously, when inflation reaches unimaginable heights, the socialist government will use its two favorite tools: propaganda and repression.
1. Propaganda, which accuses merchants and businesses of raising prices out of greed, and
2. Repression, which takes place when social unrest intensifies and citizens legitimately hold governments accountable for scarcity of goods and high prices – these are the two main strategies.
What do central banks do?
If we want lower prices, we need to give less economic power to the government, not more!.
Only free markets, competition and open economies help lower consumer prices. Many may think that we currently have a free global market with competitive and open economies, but the reality is that we live in increasingly interventionist and over-regulated economic conditions where central banks and governments struggle to perpetuate unsustainable public deficits and debt.
As a result, they continue to print more money, leading many to wonder why it is becoming increasingly difficult for families to make ends meet, to buy a home, or for small businesses to thrive.
The government is slowly “eating” the currency it issues. This is called “social use of money”.
The Self-Fulfilling Prophecy – What is the ‘social use of money’?
In essence, the social use of money means giving up one of the main characteristics of money, its value as a reserve medium, in order to give the government preferential – so-called – access to credit to finance its commitments and other forms of social transfers.
Hence, the state may announce larger social transfer programs and increase the size of the public sector relative to the economy, creating a self-fulfilling prophecy. The government issues more currency, which makes money increasingly worthless.
Citizens are more dependent on the state and will demand more subsidies paid in state-issued currency. In essence it is a process of economic control through the devaluation of public debt and currency. When governments and central banks talk about price stability, they mean a 2% annual devaluation of the currency – the “allowed” inflation. When overall prices rise by an average of 2%, this is not price stability because it is measured by the consumer price index, which is a carefully constructed “basket” of goods and services weighted by the same people who print the money – normal construction of reality.
- This is why governments love the CPI as an indicator. It does not fully reflect the erosion of the currency’s purchasing power.
- This is why the calculation of the CPI “basket” fluctuates so often. Even if it measures accurately, it will underestimate the rise in prices of non-substitutable goods and services by adding them to a “basket” of things we consume, at best, once or twice a year.
When you combine housing, food, health and energy with technology and entertainment, there will always be distortions in the picture that the data will show. 
The currency with decreasing value So governments and central banks are never going to actually defend price stability. If overall prices fell, competition soared, and citizens saw their real wages rise and their deposit savings grow in real value, they (governments) would be useless to the economy. When a central bank like the Fed cuts interest rates and increases the money supply after 20.4% cumulative inflation over four years, it’s not defending price stability, it’s defending price increases. This strategy serves to hide the government’s financial insolvency. Governments are the ones who create inflation by spending a currency that is constantly losing purchasing power because the government issues more than the private sector demands. No company or alleged ‘bad’ oil producer eg. it cannot increase overall prices and continue to grow annually at a lower rate. Only he who prints money and central banks don’t print money because they want to increase the money supply to “absorb” increasing deficit budget spending. Inflation is a hidden tax, a slow process of nationalizing the economy, and the perfect way to raise taxes without angering voters while blaming private business in the meantime for the disastrous economic outcome. The consumer will likely blame the store or business for higher prices, not the issuer of a currency that loses its purchasing power.
The game of power
Why do governments want higher prices? Because it gives them more power.
Destroying the currency they issue is a perfect form of control. That’s why they need higher debt and higher taxes.
High taxes are not a tool to reduce the debt, but rather a means to justify the growing public debt. You may have read many times that the government has unlimited borrowing power and can manage inflation to ensure the welfare of the citizens. It is false.
The government cannot issue all the debt it wants: There is an inflationary, economic and fiscal limit.
- Inflation is a warning sign of declining monetary confidence and loss of real purchasing power.
- The economic limit is evidenced by lower growth, lower employment, weaker real wages, economic stagnation and a reduction in external demand for public debt (and then a debt crisis manifests).
- The fiscal edge is evidenced by rising interest spending even with low interest rates, weaker receipts for the treasury every time they raise taxes, and citizens and businesses leaving the country for friendlier tax systems, which add to the poor or negative multiplier effect of government spending.
If we want lower prices, governments should be given less economic power, not more. A government that proclaims it will lend $2 trillion a year to a growing economy that will steadily increase public revenue and continue to raise public debt until 2033 under the most optimistic assumptions about GDP and receipts is simply saying it will make citizens poorer . When a politician promises to lower prices, he is always lying. A weaker currency is a tool to increase government power in the economy. Money is credit and public debt is a monetary quantity. Currency depreciation is inflation, and inflation is tacit bankruptcy. No interventionist government or central bank wants lower prices because inflation allows the government to increase its power while slowly eroding its commitments to fiscal prudence.
