Debt? Inflation? The Big Muddy

Mark Greathouse

(7/2021) Back in 1967, folks were treated to Pete Seeger’s "Waist Deep in the Big Muddy," a song of war protest. Perhaps today, it’s fitting to apply to our nation’s fiscal crisis. As one of its famous lines goes, "We were neck deep in the Big Muddy and the big fool said to push on."

Our national debt is just greater than $28 trillion. If you could manage to count one number aloud per second, it would take you nearly 32,000 years to count to one trillion. Say 999,642,327,459 in one second. Gotcha! Hey, it’ll take 896,000 years to count to 28 trillion. Now, what does our national debt have to do with inflation? With a viable economy?

What’s inflation besides putting air in your car tires. From a financial perspective, inflation is defined as a persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money. In effect, inflation as applied to economics is a regressive income tax on citizens, whereby they exchange reduced purchasing power for profligate government spending. The prices of goods go up without commensurate increase in value.

Inflation has a sordid history and hyperinflation even worse. In 1947 following WWII, the amount of money in the German economy—currency plus demand deposits—was five times its 1936 level. During the German hyperinflation the number of German marks in circulation increased by a factor of 7.32 × 109. The inflation rate in Venezuela reached 10,000,000 percent by the end of 2019. Venezuela's economy had begun to experience hyperinflation during the first year of Nicolás Maduro's presidency as mostly caused by heavy money-printing and deficit spending. A loaf of bread cost 124,000 Bolivars, a dozen eggs 228,000 Bolivars, and it cost a single person 78,000,000 Bolivars a month to eke out an existence.

Hyperinflations tend to self-perpetuate, as the public tries to spend the money it receives as quickly as possible in order to avoid the inflation tax, while the government responds to higher inflation with higher taxes and even higher rates of issuing money. As a government commits to financing its expenditures by issuing money and begins to raise the money supply by perhaps 10 percent per month, the inflation rate increases commensurately. The government sees that it can no longer buy as much with the money it is issuing and responds by raising money growth even further. Thus, the vicious hyperinflation cycle begins and initiates an ongoing tug-of-war between the public and the government. Government prints and borrows more money, and citizens receive ever less value. The government also reacts by implementing an age-old punitive solution called taxes toward controlling and even masking inflation. Businesses feed those increased taxes into the prices at which they sell their goods and services. Consumers find they can’t buy as much and turn to the government money trough for relief rather than do without. With decreased demand comes decreased production and resultant scarcity and rationing of goods.

The debt portion of the U.S. government money machine is huge. Most folks don’t know that most U.S. debt is held by our own government. It holds $21 trillion mostly as T-bills, notes, and bonds. Foreign nations hold a measly $6.8 trillion, with Japan $1.29 trillion, China $1.07 trillion, and the UK $430 billion. Oh, the interest on all that debt is $3.9 trillion. Ouch! That’s like a bad credit card. And you can bet our foreign creditors are none too happy when our dollar is devalued by inflation.

Let’s add to this decidedly ugly picture. Currently, the United States annually takes in $3.5 trillion in revenue and spends $6.8 trillion. How long could the typical citizen operate their household spending twice as much as they take in? Our currency is called "fiat money," inconvertible paper money made legal tender by government decree. It’s not pegged to anything solid like gold. Inconveniently, the U.S. Government cannot declare bankruptcy.

Two important questions arise. Who gains by taking us down the financial insolvency route, and how do we bring an end to this route to fiscal disaster? I feel as though my finger is on the hair-triggers of a double-barreled shotgun…10 gauge.

Who gains? It’s complicated, but the simple answer is that there are folks among us who thrive on control and are willing to do just about anything to maintain their exercise thereof. What form of government depends exclusively on full control of its citizens? Answer: Communism and its weak sister, socialism. Think not? How about the ongoing leftist attacks on private property, religion, family, education, and small business?

The politically "progressive" (misnomer) left would have us believe that taxing the wealthy would solve the revenue problem. That wouldn’t put a dent in it. Plus, it disincentivizes the wealthy from investing in new products and businesses that would create jobs by penalizing their success. Businesses respond by moving operations out of country.

How many folks know that revenues from income taxes actually increased under President Trump’s reduced tax rates for all Americans? You wouldn’t hear that on CNN or MSNBC and barely heard it on FOX. The tax increases proposed by President Biden to pay for wanton spending on social and energy programs will tank the economy. While he insists that no one earning under $400,000 will see increased taxes, that’s a total lie. The middle- and low-income wage earners will be deeply affected by the hidden taxations of job losses and inflation. The vested interests of the Federal Reserve, politicians, and media claim inflation is at 2 percent, when true inflation stands at around 6 percent. Say good-bye to your buying power.

So, how do we get the national debt and thereby inflation with its lost buying power under control? I suggest five possible actions to rein it in: First, we could use phone calls and emails to hold Federal and state politicians’ feet to the fire to stop their profligate spending. Second, we could educate politicians to keep their grubby paws out of the national money trough that they nose up to like pigs to slop. Educate? Anyone optimistic? Third, we could elect new, fiscally-conservative legislators who follow-through on promises to not spend in excess of tax revenues. Promises made versus promises kept? Fourth, we could have a balanced budget amendment to the U.S. Constitution to ensure that our Federal government is held to fiscal account. Efforts by the House to obtain the necessary majority to convene a Constitutional Convention have been DOA. A downside to such an amendment is that it doesn’t take into account fiscal emergencies like wars or pandemics. Fifth, we could ramp up the economy to take in vastly greater revenues and thus be able to collect more tax revenue. Frankly, my common sense says this fifth action holds the most promise. Unfortunately, it isn’t going to happen under President Biden’s watch.

Our nation must follow fiscal fundamentals. Until recent tax cuts, deregulation, and trade deals supplied a quick-fix band-aid, economic growth had been below historic standards. The current Administration has reversed those initiatives mostly out of spite over the previous President, substituting the socialist, government-driven economic sleight-of-hand of the political leftists while we citizens pay resulting inflationary prices whether at the gas pump, hardware store, or grocery. We need capitalism on steroids, a vibrant growing economy to dig out of our inflationary debt crunch. Meanwhile, we listen to the big fools and keep crossing the Big Muddy.

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