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Memories of the 28th Century

Inflation Policy

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I saw a letter to the Editor in the Daily Hampshire Gazette that asserted that present inflation was a result of Bidenís policies. That is a false accusation. There has been inflation at substantial levels for several decades, and it has been a deliberate policy of the U.S. government. The inflation policy was established to ensure that the government could make money by selling long term bonds.

Bonds are sold by the Treasury Department with a fixed interest payment, and the actual interest rate is determined by the discount at which they are sold. The annual or quarterly coupon payments cover the interest, and the final payment of the face value covers the initial payment for the bond. For an initial payment of about $950, an investor gets annual payments of about $30, and when the bond matures, the investor gets the face value of $1000. But the value of the final payment has been affected by inflation. At the target inflation rate of 2%, the final payment will have a value of about 0.55% of the initial purchase price, because inflation will have decreased the value of the dollar that much. That is a very good deal for the U.S. Government, but it is a poor deal for investors. That policy has been in place for several decades, so the dollar has lost most of its value over time.

Donít blame Biden, or other current politicians for inflation; it has been going on for more than 150 years, but the covid restrictions did create situations that favored more inflation. If we need to blame anyone for inflation, then we should start with the Defense Department, that has a budget of more than $750 billion, more than 11 times as much as Russia spent on military in 2021, and Russia has the second highest level of military spending in the world.

If we cut the military spending to a mere $250 billion, then we could use the other $500 billion to pay down debt. Reducing the amount of U.S. debt would tend to make Treasury bonds more desirable, and that would allow for a lower coupon rate, saving the U.S. money. Paying down the debt at a half billion a year would mean being debt free in only 60 years (current national debt is more than $30 trillion). And the country would save even more along the way, because interest on the national debt is more than $500 billion per year, but that would decrease as the debt decreased.

So, we shouldnít blame any politicians for inflation. We should blame all politicians for inflation. We need to have people spending public funds as if they understood that the more they spend the more everything will cost. If I were a defense contractor, then I would feel differently about it, but I am not, so I would rather cut spending and make the dollar worth more, as prices decreased.

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