Simple answers aren’t always the right answer, but when people are too lazy or distracted to know better, simple answers are often accepted as the right answer.
Mundis vult decipi, ergo decipiatur. The world wants to be fooled, so let it be.
President Biden, a sly politician, loves to blame corporate greed for rising prices, which has proven to be a simple and effective answer to why consumer prices are so high.
He shifts the focus from the government’s failed policies with one simple statement. In doing so, he also points out the boogeyman that the public may be turning their anger towards.
Biden’s logic is simple: corporations are greedy because prices are rising. But if corporations are greedy because prices are rising, isn’t the government greedy because prices are rising?
Specifically, if companies are greedy and raise prices, does that mean the United States Postal Service (USPS) is greedy too?
at the time Forever stamp When it was released in 2007, it was available for just 41 cents. In January of this year, the price of the Forever stamp increased from 66 cents to 68 cents. That’s a 3% increase and a 66% increase over the original price.
Still, the 68-cent Permanent Stamp was not a good fit for the USPS. In fact, the USPS plans to raise the price of the Permanent Stamp by 5 cents, to 73 cents, on July 14, 2024.
This year alone, costs are up 10.6%, and since the permanent stamp was introduced 17 years ago, they’ve gone up a combined 78%. What’s going on? Is the USPS being greedy?
Inflation tax
If the USPS were a private company, it would have closed decades ago. The USPS is currently losing money. It reported a loss of $6.5 billion in fiscal year 2023 and is projecting a loss of $6.3 billion in 2024. But with Uncle Sam and taxpayer money, the USPS will continue to lose money forever.
Of course, these losses are covered by government deficits. And deficit spending, borrowing from the future to the present, is inflation. So the USPS is guaranteeing that the cost of permanent postage and other consumer goods will continue to rise.
According to Biden, it’s because corporations and, by his logic, the USPS are greedy. But is that the right answer?
A more sensible answer is that money is losing its value. Why? Because the value of money is being systematically destroyed to finance government spending, and it is completely out of control.
The U.S. Treasury reported a deficit for the first half of fiscal 2024. $1.65 trillion. At this rate, the deficit for fiscal year 2024 will easily exceed $2 trillion. All this spending overkill is incredibly inflationary.
Perhaps some of the USPS price increases are due to government incompetence. But that incompetence has been going on since 2007, long before the introduction of the permanent stamp. So the price increases are mostly due to the government’s devaluation of the dollar.
A 78% increase in prices over just 17 years means the dollar has lost about 44% of its purchasing power. In other words, using a permanent stamp as an inflation indicator, it takes $1 today to buy what you could buy for 56 cents in 2007.
This is just one of many examples of your hard-earned savings being stolen by the government through inflationary taxes.
The burden of debt
Over the past 25 years, massive government deficit spending has accumulated on a massive scale. $34.6 trillion National Debt. In addition, all this deficit spending, combined with the easy money policy of the Federal Reserve, has led to rising consumer prices, including the price of permanent postage stamps.
As debt piled up over this period, they did so in an environment of ever-lowering interest rates. So as more and more debt was added, the cost of servicing it went down. This gave rise to a false sense that the huge debt pile was sustainable.
Interest rates hit an all-time low in July 2020, with the 10-year Treasury yielding just 0.62%. Since then, rates have been rising in earnest, along with rising consumer prices.
Now, the prospect of higher inflation is pushing up interest rates, as debt investors demand higher yields to protect the value of their principal. The yield on the 10-year Treasury has jumped from 3.93% to 4.64% since the beginning of the year. And these higher rates are making it increasingly expensive to finance government debt.
During the first half of fiscal year 2024, while the U.S. government ran a deficit of $1.65 trillion, the U.S. Treasury paid $429 billion in net interest, which is more than 40% of the deficit. During that period, the national defense budget was $433 billion.
By comparison, net interest on debt was $300 billion in the first half of fiscal 2023, while defense spending was $407 billion. Between fiscal 2023 and fiscal 2024, net interest as a share of the overall government spending pie increased dramatically.
perpetual motion machine finance
In the coming years, net interest on the debt will continue to grow, consuming more and more of the government budget, and the government will finance this with more and more debt.
Using debt to pay interest on debt is a kind of perpetual motion machine, a dead end. But that is exactly where Washington is taking America’s finances. And no one in Congress can stop it.
The U.S. Treasury is roughly preparing to sell. $386 billion of May bonds. This is in addition to the $7.2 trillion in debt the U.S. Treasury sold in the first three months of 2024, the largest quarterly total on record. It also “A record $23 trillion in Treasury bonds were issued last year, raising $2.4 trillion in cash when taking into account maturing bonds.”
According to Apollo Global Management’s chief economist, Torsten Slok, a record $8.9 trillion in Treasury debt is due to mature in 2024. What’s notable is that the cost of financing (interest rates) is about seven times higher today than it was just four years ago. That’s why net interest on debt is quickly approaching $1 trillion a year.
Federal Reserve Chairman Powell wanted to manage all government debt restructuring by cutting interest rates. Persistent inflation, courtesy of the Fed and Washington, has ruined that plan. Even the BLS’s rigged CPI report can’t completely hide the rise in consumer prices and the rise in permanent postage stamp costs.
This week Q&A Session in WashingtonPowell downgraded expectations for future rate cuts, saying the Fed would keep rates at current levels. “As much as needed” To reduce inflation.
Are you prepared for a long wait?
When the federal government borrows and spends $2 trillion more a year than it collects in taxes, cutting interest rates is not an option. Stock market investors finally seem to understand this.
[Editor’s note: It really is amazing how just a few simple contrary decisions can lead to life-changing wealth. And right now, at this very moment, I’m preparing to make a contrary decision once again. >> And I’d like to show you how you can too.]
thank you,
MN Gordon
For Economic Prism
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