It has been assumed that the cost of the putative bailout will be born by taxpayers. However, since that the Fed and Treasury will pay for it with debt and by printing money, the people who will pay for it are anyone who holds dollars. Given that the final cost could end up in the trillions, the result will be quite a bit of that hidden tax called “inflation,” as all the debt and new money dilutes the currency. Inflating the currency is actually a very regressive tax, however. Poor people generally have to live month-to-month, and thus aren’t able to save and invest money, holding most of their wealth in cash. They also don’t have access to as high yielding investments as the rich. Most importantly, they occupy jobs which are usually the last to see inflationary wage increases filter down to them (which is as it “should be” or otherwise inflation wouldn’t work so effectively as a hidden tax).
So, this bailout of Wall Street is going to be disproportionately paid for by the working poor. Good job congress.
4 responses to “Taxing the poor to bail out Wall Street”
I had the same concern about devaluing the currency, but I heard some guy on the radio talk about how actually with one fell swoop there will be an equivalent amount of money taken out of circulation at the same time, so the net effect is near zero. Thus it becomes more a shifting of money from one pool to another, rather than a net increase. But obviously I don’t remember real good the details.
Hi, Ken! That’s interesting. Did they say where the money would be going out of circulation? It seems like there has to be an inflationary increase in the money supply or its not going to be much of a bailout. Maybe he was saying it will just go right into rebuilding the reserves of the participating banks and essentially out of circulation? I would think we’re still paying for it in the sense that we will miss out on dollar strength that would’ve happened without the bailout, even if the net effect is not inflationary. I’ll look into this more.
I’ve been betting on inflation for, a while now but so far it isn’t working out. In fact it’s actually slowed. Oddly enough the dollar was the one place you could have put your wealth in the past six months or so and made out ok. Stocks, bonds, foreign currencies, metals and commodities all tanked.
I’m not economically literate enough to know why it isn’t happening but I’ll venture a guess: De-leveraging. I’m not sure about this, but don’t loans actually increase the effective amount of “money” in circulation? If so then all those 30:1 leveraged banks and hedge funds going bust means there’s less out there. Not to mention all the bad loans to homeowners.
Maybe that’s what deflation is… hmm… it’s off to wikipedia for me.
Unquestionably, there is progress. The average American now pays out twice as much in taxes as he formerly got in wages.
H. L. Mencken