When Government Spends You Pay — One Way or Another
The US government is spending money at a torrid pace. As Peter Schiff explains in this short clip from his talk at the Virtual Money Show, there are really only three ways the government can pay its bills. And ultimately, the money comes out of your pocket. The most honest way the government pays its bills is through current taxation.
In this scenario, the US Treasury collects the amount of money necessary to cover the spending for the current year directly from taxpayers in the current year. But while this is the most honest way for a government to pay its bills, it’s not particularly popular with taxpayers. As Peter pointed out, politicians running for office don’t want voters to realize how much all of these government programs actually cost. Now, there are certainly voters who benefit from the programs and couldn’t care less about how much they cost because they’re not the ones paying the taxes.
But then you have the group of voters who are paying the taxes and who are not directly benefitting from all of those programs. “The second way the government can pay for spending is by borrowing money. “ In this scenario, the government is taxing the taxpayer in the future. In practice, the US government sells Treasury bonds to willing buyers on the open market.
When the bonds mature, the government pays the lender back with interest. This is actually more expensive than current taxation. The US government has borrowed so much money to try to delay the day of reckoning for so long and kick the can down the road as we go deeper and deeper into debt that now we have a national debt that’s approaching $30 trillion. “When you step back and look at the numbers, it becomes clear that repaying this debt is impossible — not with money that has any real purchasing power. “
In fact, the debt has grown so large that if we had a normal rate of interest, the government would struggle just to make the interest payments. So the only way left for the government to fund its expenditures is through inflation. In practice, the government issues debt, and then the Federal Reserve steps in and buys that debt with money printed out of thin air. This expands the money supply.
When you lend money to the government, it doesn’t expand the money supply. The government has money to spend, or it passes it on for some other person to spend, but you don’t have that money to spend. You’ve just transferred money from one party to another. But when the Federal Reserve monetizes that debt and prints new money, everybody gets to spend.
There is more money in the economy because the government hasn’t taken money away from anybody, but it’s giving new money to other people. When the government doesn’t raise your taxes, if it just prints money and then gives it to another individual to spend, your purchasing power, at least in dollar terms, hasn’t been diminished. So, instead of the government taking your money, the government takes the purchasing power of your money. “The inflation tax lowers our standard of living just like direct taxation.”