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Chronicle of Change

Documenting the Real Change

 

Here’s a simple way to illustrate a common misconception about “tax cuts” and/or “tax hikes.” This will work well at bars, cocktail parties, and really in pretty much any casual environment. Challenge a liberal (or someone else who doesn’t understand economics) with the fact that raising taxes will not help our current situation and add that you can prove it. Make sure that you either have or can borrow a twenty dollar bill for your demonstration. Some other bills can add a little flair but all you really need is the twenty.

First, ask a simple question. “In order to help us out of this mess does the government need more money?” (They really don’t but play along like spending doesn’t matter). When they say “yes” lay out the premise:

They will be “the government” and you will be “the economy.” Tell them that they are going to be able to name the top tax rate paid by the “rich” and that you will give them the maximum amount of “revenue” that you (the economy) can give them (the government) based on that tax rate. (Don’t forget to make it clear that this is just a demonstration and you will actually want your real money back).

Each dollar that you give them will represent 1% of the total economy (i.e. a five dollar bill would represent 5% of GDP, a fifty would represent 50% of GDP, and a hundred dollar bill would represent the whole thing). Tell them that the current top tax rate on the rich is 35% and ask them to name the rate they think it should be. Once they name a rate, fumble around in your pocket or wallet a little bit and then hand them the twenty. Pause for a minute, ask for your twenty back and ask them if they would like to try a different top tax rate. No matter what rate they name, hand them back the twenty. If you like, for a little drama, you can fumble around with some other bills or give different denominations but always hand them twenty dollars. After a few tries they will get the idea that they will always get the twenty no matter what they say.

This is an easy to understand illustration of Hauser’s Law. According to Hauser’s Law revenues will never exceed 20% of GDP no matter what tax rates are put into effect. This has held true since 1929 with tax rates as low as 28% (1988-90) and as high as 92% (1952-3).

 

As tax rates rise, businesses and investors react. They slow their activity, delay taking income, stop investing and expansion, or move operations out of the country. Even with a higher rate, there are a lower number of taxpayers so revenues hit a ceiling. This slowing of business activity also affects unemployment (see August 24th post, http://chronicleofchange.com/?p=223).

The only way to bring significantly more money to the government is to increase the number of taxpayers (increase the GDP). The only relevant questions regarding tax rates should be:

1. At these levels do they encourage growth?

2. At these levels are they competitive with other countries?

The revenues which might be gained by tax increases of any kind are capped by economic law and, in our current situation, would not begin to touch the massive deficits we are facing. The problem is spending, plain and simple. With a built in 8% annual increase in spending every year plus overspending on that by 40% every year the country is now in the express lane to financial hell. It’s time to take the foot off the gas and apply some serious braking.

 

  

They say a picture is worth a thousand words.

The graph shown from the Illinois Policy Institute is of the number of those employed in Illinois beginning January 2010.

Illinois raised tax rates as indicated on the graph in January of 2011.

Is this what we need right now for the entire country?

With the state getting a higher tax rate but collecting taxes from 100,000 less workers do you think there is more or less money entering the state’s checkbook?

 

 

Where Do You Get Your News?

Posted by GB on August 23, 2011
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Just in case you missed it, President Obama dropped in for a Sunday evening visit with some close friends. He and Valerie Jarrett paid a visit to the West Tisbury home of Brian and Aileen Roberts.

The long line of Chevy Volts massive limos (rumored to be around 40) arrived at around 5:30 PM at the Roberts’ luxury residence on Martha’s Vineyard. Brian Roberts is the CEO of the parent company of NBC and its subsidiary, MSNBC.

Maybe NBC and MSNBC will put this photo in a little “picture-in-picture” box in the upper left hand corner of the screen during their campaign, debate, and election coverage. Ya’ know, to show they have an inside track to the latest propaganda, uh…. news from Washington.

  

   With class warfare just oozing out of the White House these days the demonization of the “rich” has ratcheted up to a fever pitch and is likely to get even worse as we approach elections. Let’s take a look at a timeline of someone who fits the class warfare definition of “rich” with an eye toward asking the question “When does someone cross that line and become “rich?” Of course, there are those who are born rich or marry rich but we will leave them out of this discussion and address those who succeed at the American dream and actually earn their money.

For our example let’s take a look at a medical student. We’ll call him Robert. Robert works his way through undergrad school taking minimal student loans but is forced to borrow to pay for medical school and his residency. According to one source “…. with debt-forbearance during his five-year residency and a 20-year payment plan, the total owed would be $788,880.” Many med students choose to pay all or some of the interest during residency to keep borrowing costs down. In our example, Robert could pay roughly $21,000 per year out of his average $40,000 take-home and cut the end-of-residency total to $369,000. To do this he would be forced to live on $19,000 a year for five years or find a part-time job while in residency. That’s pretty tough duty but we will assume he does this.

So, following the timeline, at 26 he graduates medical school but has no income so he is obviously not rich. For five years he is clearing $40,000, paying $21,000 in debt interest, and possibly working a second job. Obviously not rich. At 31 he finishes his residency and has still not made any real money and he owes $369,000. Still not rich.

OK. Now Robert is a doctor and can finally make some money. He signs on with an elite practice and will be making $275,000 per year. This is over President Obama’s oft repeated line in the sand of “those making over $250,000 per year.” You know, those evil rich who don’t pay their “fair share.” Assuming a California residency, Robert takes home $165,215 after taxes. Is he rich now? Hang on a second before you answer. He’s got loan payments of over $34,000 per year. Rich now? Hang on a minute….. You’ve got to consider malpractice insurance. A general surgeon (middle of the road cost level) would pay $56,000 per year in Florida. An OB/GYN would pay much more.

After paying $100,000 in taxes, Robert is now parting with half of what is left for loan payments and malpractice insurance leaving him with roughly $75,000. The loan payments are based on a 20 year payoff so Robert will be 51 by the time he can keep that $34,000.

Now nearly thirty years after graduating college, Robert is 51, makes $350,000 per year, and the loan is finally paid off. Again as a California resident, after paying $144,000 in taxes, his take home pay is $206,000. After malpractice insurance he gets to keep $150,000. Rich now? Needs to be taxed more? After 30 years of service does he have a right to keep more or less of what he earns? You decide.

As you ponder, keep in mind that hard working people like this (the top 10% of earners) currently pay 86% of all federal income tax while half the country pays nothing.

Much of the cost data came from “Informed Consent” by Benjamin Brown, MD. You can read an excerpt at:  http://www.eyedrd.org/2011/02/deceptive-income-of-physicians.html 

Next Stop? The Twilight Zone

Posted by GB on August 20, 2011
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  Rod Serling would have to elevate his level of strange writings to match some of today’s reality. His first stop in the Zone might be with Tom Vilsack, Secretary of Agriculture, who said this on Tuesday:

  “Later this morning, we’re going have a press conference with Secretary Mavis and Secretary Chu to announce something that’s never happened in this country — something that we think is exciting in terms of job growth. I should point out, when you talk about the SNAP program or the food stamp program, you have to recognize that it’s also an economic stimulus. Every dollar of SNAP benefits generates $1.84 in the economy in terms of economic activity. If people are able to buy a little more in the grocery store, someone has to stock it, package it, shelve it, process it, ship it. All of those are jobs. It’s the most direct stimulus you can get in the economy during these tough times.”

Exciting job growth from food stamps? This is definitely worthy of a Twilight Zone episode. If we get $1.84 benefit to the economy for every dollar we put in why not just give out a trillion or two in food stamps and rescue the economy once and for all?  Did he possibly forget that he had to take that dollar from a taxpayer who could have spent it for his own food?

Further out in the Zone we might find NASA spending your tax dollars along with the dollars of Penn State University to come out with a study analyzing whether or not contact with aliens (ETI) would be harmful or beneficial. I kid you not. Real study. Real dollars. Here’s a few quotes:

“ETI could attack us out of selfishness or out of a more altruistic desire to protect the galaxy from us. We might be a threat to the galaxy just as we are a threat to our home planet…

It goes on to say that aliens might “seek to preemptively destroy our civilization in order to protect other civilizations from us.” And then there’s this: “Humanity may just now be entering the period in which its rapid civilizational expansion could be detected by an ETI because our expansion is changing the composition of Earth’s atmosphere (e.g. via greenhouse gas emissions), which therefore changes the spectral signature of Earth…”
 
Really? Global warming is going to force an alien civilization to destroy Earth to protect other civilizations from our evil “carbon footprints?!” This could give a whole new meaning to the term “little green men.” This is the new NASA. Remember when NASA was cutting edge cool? Remember “One small step for man, one giant leap for mankind?” And, by the way, Penn State is the home of Michael Mann, the creator of the now disgraced “hockey stick” temperature graph.
 
The Zone might also feature the Army Corps of Engineers… The Corps was founded in 1802 by then President Thomas Jefferson. Right after the War of 1812 they began overseeing the nations river systems. Dams and reservoirs were designed and built over the years to prevent the disastrous floods that had long plagued those living near major rivers. In modern times, the environmental movement has gradually become more and more influential on the activities of the Corps as well as producing more destructive results. According to Joe Herring in the American Thinker, “The Corps is dancing to the chanting of American Rivers, the Sierra Club, and numerous other left-of-center environmental lobbying groups, working toward “reconnecting the river to its floodplain.”  According to this green-trendy concept, a slow, meandering river poses no threat — only the channelized “ditch” created by man’s interference is dangerous.” In 2006 environmentalists forced a rewriting of the Master Water Control Manual to “reflect and further their cultural and biodiversity goals of “eco-system restoration.” The agency now spends $73 million a year on fish and wildlife habitat restoration and only $6 million a year on flood control. Well thank you Sierra Club! Mission accomplished. The Missouri River is now “reconnected to its floodplain.” The Missouri is now 11 miles wide in some places after this year’s spring floods. Entire towns are still under water. When asked about why more water wasn’t released sooner to prevent the flooding the Corps’ representative said of the water levels “The way the manual is written, that’s always the target.”
 
Towns and villages that were there before the construction of the dams have now become a victim of their misuse and “sleep with the fishes.” The system of dams and reservoirs that was constructed to prevent flooding and protect property is now being manipulated in the name of someone’s arbitrary concept of the “natural state” of the river to actually encourage the very flooding it was created to stop.

And of course, no discussion of an alternate reality would be complete without our President…. According to the President himself, the State of California spent $100 million of stimulus money on weatherizing homes. The result? 538 jobs. One hundred million of your tax dollars were used to create 538 “makework”  jobs in a state of 37 million people at a cost of  $185,873.61 per job. Here’s an alternate idea; why not just give deserving individuals a $61,957.00 check? That would help out 1614 people (three times as many) for the same amount.

One of Rod Serling’s favorite plot lines was that of the person who stumbled into a strange situation in the Twilight Zone and could not find his way out. I worry a little more every day that our reality might match Serling’s genius.

 

Die Mandate Die

Posted by GB on August 17, 2011
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Take heart folks. The biggest job killer and worst piece of legislation in history is in the process of being declared unconstitutional. From today’s American Spectator regarding the recent court decision declaring the individual mandate unconstitutional and the prospects for the Supreme Court appeal:

“The Judges concluded, “The government’s position amounts to an argument that the mere fact of an individual’s existence substantially affects interstate commerce, and therefore Congress may regulate them at every point of their life. This theory affords no limiting principles in which to confine Congress’s enumerated power.”

“The bottom line takeaway from this decision is that if this is how Judges Hall, Dubina, Hudson, and Vinson, appointed by Presidents Clinton, Bush I, Bush II, and Reagan view the Commerce Clause analysis of the Obamacare individual mandate, then this is how Justices Scalia, Thomas, Kennedy, Alito and Roberts are going to view it also. That is based not primarily on who appointed these Justices, but on a long reading of their opinions, and a career of filing briefs in cases before the Court. What we have seen from these four judges so far is going to be persuasive at least to these five Supreme Court Justices. At this point, the vote of Clinton-appointed Justice Stephen Breyer​ is more in play than the vote of any of the above five.”

 Full article at:  http://spectator.org/archives/2011/08/17/obamacare-is-going-down

You WILL Take This Money

Posted by GB on August 14, 2011
Posted in Uncategorized  | 1 Comment

Imagine this:

“Mr. Smith, we’re with the Federal Dept. of Transportation. Please sign here for your free high-mileage tires.”  “But I don’t need new tires. I just bought a set and they’re fine.” “Mr. Smith, sign for the tires or we will be forced to run a test to verify that your car meets our regulatory requirements. If you’re under 27 mpg it’s illegal for you to drive that car. You really wouldn’t want us to do that, would you?” “I don’t need your free tires, go ahead and run the test.”

One Week after Mr. Smith’s car passes the test: “Mr. Smith, we must insist that you sign here for your tires.” “I told you I don’t need tires and I passed your damn mileage test last week.” “That’s true but yesterday we raised the mileage requirement from 27 to 37 mpg and now your car doesn’t pass. If you don’t take the tires it will be illegal for you to drive your car.” “This is crazy! I can’t believe this is happening! Where do I have to sign?” “Here and here and also here where you sign over 40% ownership of your car to us.”

One Month Later: “Mr. Smith, here’s your route for delivering the mail.” ” “What?!! What could possibly make you think I’m going to deliver the mail for you?” “Mr. Smith, the new Citizen Mail Delivery Act we passed this week says that, if you took the tires, participation is mandatory. It’s the law and it says you will deliver the mail. After all, you did take the free tires.”

Far fetched? Maybe not so much….. two separate stories I ran across over the last week led to an interesting intersection. Both stories involve banks and our federal government.

I found out about the first story while watching author Donald Luskin hawk his book, “I am John Galt,” on BookTV. The book matches up the characters in Ayn Rand’s book, Atlas Shrugged, to real life people. The match that grabbed my attention was that of the novel’s main character, John Galt, to the former CEO of  BB&T Bank, John Allison . 

As well as being the CEO for many years, John Allison was the driving force behind the rise and success of BB&T. He was a devotee of Ayn Rand’s philosophy of “objectivism” and, as such, ran his company dedicated exclusively to excellence, innovation, and success. His philosophy gave great weight to the individual rather than the corporate structure. The company’s results confirmed this to be an excellent way to run a business.   

During the boom years of easy money and the “if you’ve got a pulse you get the loan” mortgage market one of Allison’s middle managers came to him and suggested that making all these questionable loans might not be a good idea. Allison, the CEO of the company, changed the course of his entire company on the advice of one of his middle managers! BB&T returned to the traditional lending practices that had served them well for so many years and ignored the so-called “easy money.” Because he took the sound advice of a middle manager BB&T was relatively untouched by the collapse of the housing market. A happy ending, right? Enter the government.

During the bank bailout mania federal regulators came to Mr. Allison and asked him to sign the paperwork for BB&T to receive their TARP bailout funds. He replied “No thank you” telling them his bank was just fine and didn’t need the money. They again strongly suggested that he take the money. He again told them he didn’t need it and wouldn’t sign. They then told him they would have to run a “stress test” on his bank to verify that it was healthy. For those of you unfamiliar with a “stress test,” regulators create an imaginary scenario of bad conditions and then project how a bank would survive (or not) under those stressed conditions. This was a veiled threat but Allison would not submit and told them to go ahead and run the test. They did and the bank passed with flying colors.

Shortly thereafter the regulators returned and again put the paperwork in front of Mr. Allison and told him he must sign. He again told them he did not need the money and reminded them that the bank had just passed their stress test. They then informed him that the bank had passed the stress test last Tuesday but, since then, they had changed the amount of capital they felt the bank had to have in reserve and now they didn’t pass. He was told he must sign the papers. Having no choice, John Allison signed the papers and then walked away from his life’s work a la John Galt. This was not an isolated incident. Under the Freedom of Information Act, documents have recently been released showing that, in a meeting of the Feds with 9 major bank CEO’s, they were told “If a capital infusion is not appealing, you should be aware your regulator will require it in any circumstance.” All nine signed and, under obvious pressure, simultaneously issued multi-billion dollar amounts of preferred stock to the government in the same document. The government now owned large chunks of all the major banks.

The second story is about one of President Obama’s government plans to help those who are in danger of having their homes foreclosed on. The plan is fairly complicated, will add significant costs to banks, and forbids the banks from charging any administrative fees to cover those costs. Most significantly, according to the NY Times, “Banks that receive additional bailout funds must participate.”

Put these two stories together and it seems like the government basically took over the banks by intimidation to create their own “financial network.” They can now literally force the banks to “participate” in any hair-brained lending scheme they pass into law.

And, speaking of hair-brained schemes, does anybody remember who intimidated banks to make all those high-risk loans in the first place? Can you say “Community Reinvestment Act?”

 

In what was most likely the most spectacular geological and cultural event in history the entire State of Wisconsin mysteriously vanished on Tuesday. World cheese markets panicked (cheddar closed at $350/ounce) and scientists voiced concerns that all that snow and ice will eventually have to relocate to other warmer climates.

Prior to Tuesday Wisconsin was very much in the public eye. There were almost as many mainstream media reporters in the state as Packer fans. They were covering the results of the recall elections which, they hoped, would return control of the State House to Democrats and “fix” the problem of Governor Scott Walker’s budget control measures. Out of state union members flooded in from across the country along with $30 million of workers’ union dues to spend on the effort. National news coverage was everywhere. In the first 5 days of the story there were 53 stories on the three major Democrat media outlets  networks. Diane Sawyer, comparing the effort to the Arab Spring said, “It’s like Cairo moved to Madison.” Bob Schieffer of CBS asked Congressman Paul Ryan, “Is Madison, Wisconsin the Tunisia of American politics?” The LA Times reported on “direct mail landing in mail boxes daily, phone banks dialing, and TV ads blanketing the airwaves.” You could just feel the excitement; the unions and the Democrats were going to prevail and right this “horrible wrong” of actually balancing a budget. On the night of the elections MSNBC devoted their entire coverage to the recall results as if it were a Presidential election. They had reporters on site at various locations and were doing race by race analysis. You could just sense their anticipation as they breathlessly awaited the results with predictions that the night would be “historic.”

And that’s when it happened. The Republicans held control, the unions were defeated along with their liberal agenda and, the next morning, the entire State of Wisconsin was gone. The reporters were gone, the excitement was gone, and you would have thought the whole thing never happened. No more breathless excitement. No more anticipation. You could’ve heard a union card drop. You could actually find the results with some digging but the major networks covered the results as follows:

  • ABC – No coverage at all
  • CBS – One minute and 55 seconds
  • NBC – 55 seconds 

Scientists had some early clues to this phenomenon. It began back in February with months of major network coverage of hundreds of union thugs and political activists “protesters” breaking into the State House and doing massive amounts of damage. According to the Milwaukee Journal-Sentinel a quarter of a million dollars worth of damage was done, mainly to the majestic marble walls. Statements like this got lots of coverage: “It may lead to budget cuts in which schools will be left understaffed or lacking educational material such as books, technologies, and other provisions. School closures, a rise in teacher-to-student ratio, and the total control over the curriculum based on ideology (rather than facts) can be a possibility.” This was going to be a disaster! The bright lights of major media coverage were also shining on all of the Democrat state legislators, knowing they were now in the minority, fleeing across the state line to avoid having to cast their vote on the budget bill. There was also major coverage of the State Supreme Court battle that ultimately upheld the governor’s budget. Then, immediately after the governor signed the bill into law, the first clues that something unusual was going on began to appear. Entire school districts began vanishing.

The major media outlets simply could not find the Kaukauna School District or any of the dozens of others just like it. They could not seem to report the fact that, under the new rules, this district was going from a $450,000 deficit to a $1.5 million surplus for the upcoming year. Did they do that on the backs of the teachers and at the expense of the students? Exactly the opposite. The teachers will now have to contribute 12.6% of the cost of their health insurance instead of the previous 10%. Check your pay stub and see what you pay. They will also have to contribute 5.8% of their salary to their pension fund. Again, check and see what your employer contributes to your pension or 401K. They will also have to be on the job 40 hours a week (instead of 37) like the rest of us. These reasonable changes will save significant amounts for the district but major savings will come from finally being able to competitively bid contracts for their health insurance. Prior to the law school districts had no choice but to negotiate with one vendor for their health insurance. That vendor was…are you ready for it?……the teachers union! Now that there are actually other bidders available the teachers union has said  ‘We can match the lowest bid.'” Well, isn’t that special? If you can match the lowest bid now what were you doing to me before? It seems there might need to be an addition to the definition of “statutory rape.”

Since the district vanished, there has been no major coverage of the following from the Appleton Post Crescent:

“These impacts will allow the district to hire additional teachers (and) reduce projected class sizes,” School Board President Todd Arnoldussen wrote in a statement Monday. “In addition, time will be available for staff to identify and support students needing individual assistance through individual and small group experiences.”

The message here seems to be that you can cut major dollars out of education budgets and actually get better education. It’s not the teachers who are making too much; it’s the layers upon layers of unions and corruption that need to be stripped away.

It seems that the predictors of doom were entirely wrong but there’s no reporters around to cover the story. I wonder why that is. I heard a rumor they are all on an S.E.I.U. bus on their way to Michigan. 

 

 

Brainsnacks

Posted by GB on August 12, 2011
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From time to time the Chronicle will present some “Brainsnacks” for your reading pleasure and intellectual nourishment. These will be quick little factoids which may or may not be related to each other but will, hopefully add a little bit to your day. Here’s today’s snacks:

 

 

 

•On Tuesday August 2nd President Obama signed the debt deal giving the government the right to add $400 billion of new debt immediately coupled with future increases to total $500 billion more.

•On August 3rd they added a record $239 billion in debt (60% of their added limit) in one day.

•The previous record for one-day spending was $189 billion on June 30, 2009 (also under President Obama).

•The first year spending “cuts” in the deal amount to $22 billion; the rest are over ten years and up for discussion.

•In Washingtonspeak a “cut” of $22 billion means that instead of adding $1,300 billion in debt we are going to add $1,278 billion in debt. This is not a joke. This is not an exaggeration.

•Of all of the plans, both offered and rumored, S&P said only one would avoid a downgrade of U.S. debt; the Cut, Cap, and Balance plan which passed in the House.

•Harry Reid said that Cut, Cap, and Balance was “dead on arrival” and President Obama promised to veto the bill if sent to him.

•The Democratically controlled Senate has not passed a budget in over 800 days.

•The only budget submitted by President Obama in his entire term was defeated in the Democratically controlled Senate 97-0!

•The value of the U.S. dollar dropped another .15% yesterday to a level roughly 16% lower than when President Obama took office.

And finally (at least for today), at the time of its passage the “stimulus bill” spent enough money to pay for both the Iraq and Afghanistan wars in total from day one.

 

 

If you have been anywhere near a grocery store or a gas station in the last year or so (and who hasn’t) you might have noticed that things seem to cost more…. a lot more.

If you listen to traditional thinkers you will hear that “high oil prices due to unrest in the Middle East” or that “droughts and floods affecting this years grain crops” are responsible. In reality, the price of oil has been falling and, on Friday, the price of a barrel of oil fell to its lowest point since February of 2010. Why haven’t gas prices changed? According to the US Dept. of Agriculture total world food grain production will be 427 million metric tons more than what is consumed. Have you seen any savings at your local grocery this year? It might be that your food and gas prices are in the same range as usual but every dollar you are paying the bill with is worth a lot less. Let me rephrase that. It is worth a lot less.

When evaluating a currency you have to look at it in relation to something else (i.e. a commodity like gold or the currency of another country). When we look at those other things in relation to each other they are still in what would be considered a normal range. (An ounce of gold will still buy roughly the same amount of grain, Euros, iron ore, or whatever). What’s different is the amount of U.S. dollars it takes to get into that exchange.

Take a look at the value of the U.S. dollar vs. other world currencies since President Obama took office in 2009 (just before the last peak in the gray area on the right):

Depending on who you listen to, it’s generally agreed that the dollar has lost somewhere between ten and fifteen percent of its value in the last two years. You can run the numbers yourself. How much does a 10% “dollar-related” increase amount to on $3.50/gal. gas or a $100 grocery bill? How about on an ounce of gold or silver? Hey, the stock market’s going up, right? (Well, at least until last week). Here’s a question; are the values of the companies going up or does it just take a higher number of U.S. dollars to buy the same value as before?

The level of overspending in the last two years has crossed over into an area that can only be labeled as insane. We currently fall $4.2 billion further behind every day. This slow motion suicide has been supported by the printing of money out of thin air (QE1 and QE2). Can you imagine playing Monopoly with someone who owed you and all the other players fantastic sums of money and just strolled on over to his computer and printed up enough to pay everyone? Not only did he just pay you in “money” he didn’t earn, he also diluted the value of everyone else’s  money which they did earn. In this case it is the Federal Reserve Bank printing all the money but that’s a story for another day.

The bottom line is it simply takes 10% more dollars than it did two years ago to buy an equal amount of anything .