Everyone is saving their earnings or paying off debt. People have stopped consuming new product. How do you get people to spend to stimulate the economy? The government can’t very well tax us more. The US taxpayer is stretched out already.
Here is the way it is done. Picture a pecan pie sliced into fifths, 5 pieces, one for each member of the family and one for the government. If the government consumes that piece, it is considered taxation. Just suppose the family members don’t want to eat their share of pie, they want to save it. 4/5ths of the pie is left. Now the government takes one slice of the pie and divides it up into 4 pieces for the family members to eat (a check from the government to spend as you choose). Now there are only 3 pieces of pie left but the family members believe that there are still 4 they trust the government. By giving the family members a piece of a piece of pie, they(the government) got some of the pie eaten.
This is what the government is doing. The pie represents our collective savings. The government can give us a slice of our own pie back to us and this is inflation. We didn’t get anything real; it was already ours. The number of slices left have to be re divided to reflect the amount each person is entitled to.
When the government decides to spend tremendous sums of nonexistent money, they are actually spending our savings by taxing them by way of inflation. People are scared to death that they will lose their savings and are willing to take zero percent interest in T-Bills. In essence, they are being eaten alive by inflation that is now probably close to 25%. Your dollars are safe; your purchasing power is shot.
This dichotomy of printing money and declaring our savings fully intact is kind of like a snake feeding on its tail. There comes a point to where the absurdity of the reality has to set in.
I think that people are starting to wonder if Paulson and Bernanke are incompetent. I believe they are. That won't stop them from doing what they are doing. They are going to write some history at our expense.
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