Weekly Market Update by Retirement Lifestyle Advocates

          The “Inflation Reduction Act” passed recently will do nothing to reduce inflation.  It increases federal spending which can only be financed via additional currency creation by the Federal Reserve. 

          While there is not sufficient space in this short, weekly newsletter to thoroughly discuss all the provisions of this bill, there is one provision that I find very interesting to be included in a bill titled the “Inflation Reduction Act”.  It is the provision that more than doubles the budget of the Internal Revenue Service.

          This from “The Epoch Times”  (Source:  https://www.theepochtimes.com/house-democrats-pass-the-senates-inflation-reduction-act_4660815.html)

Included in the bill’s $700 billion in new spending is an $80 billion appropriation to the Internal Revenue Service—six times the agency’s current budget—as well as an array of new climate policies and tax incentives for individuals and corporations who switch to renewable energy sources and low-emission vehicles.

Broken down, the roughly $80 billion appropriation to the IRS will go toward “necessary expenses for tax enforcement activities … to determine and collect owed taxes, to provide legal and litigation support, to conduct criminal investigations (including investigative technology), to provide digital asset monitoring and compliance activities, to enforce criminal statutes related to violations of internal revenue laws and other financial crimes … and to provide other services.”

In addition, the funds would go to hire tens of thousands of new IRS agents to further aid enforcement of the new tax rules—which likely will mean far more audits across the board.

Unsurprisingly, the effort to expand the IRS is not popular with Republicans, who have generally opposed such efforts in the past.

“Democrats are scheming to double the size of the IRS by hiring an army of 87,000 new agents to spy on Americans,” wrote House Minority Leader Kevin McCarthy (R-Calif.) in an Aug. 4 tweet.

          As deficit spending will likely increase and potentially a new army of IRS agents hitting the streets, the math seems to dictate that the Federal Reserve is at the point of no return.  It’s been my view that the Fed will reverse course on the interest rate increases in the relatively near future since the Federal Government will need the Fed to continue to subsidize federal deficit spending.

          “International Man” published a piece by Nick Giambruno titled “It’s Game Over for the Fed; Expect a Monetary ‘Rug Pull’ Soon”.  This piece makes many of the same points that I have been making about the Fed’s options.

          Here are some excerpts:

You often hear the media, politicians, and financial analysts casually toss around the word “trillion” without appreciating what it means.

A trillion is a massive, almost unfathomable number.

The human brain has trouble understanding something so huge. So let me try to put it into perspective.

If you earned $1 per second, it would take 11 days to make a million dollars.

If you earned $1 per second, it would take 31 and a half years to make a billion dollars.

And if you earned $1 per second, it would take 31,688 years to make a trillion dollars.

So that’s how enormous a trillion is.

When politicians carelessly spend and print money measured in the trillions, you are in dangerous territory.

And that is precisely what the Federal Reserve and the central banking system have enabled the US government to do.

From the start of the Covid hysteria until today, the Federal Reserve has printed more money than it has for the entire existence of the US.

For example, from the founding of the US, it took over 227 years to print its first $6 trillion. But in just a matter of months recently, the US government printed more than $6 trillion.

During that period, the US money supply increased by a whopping 41%.

In short, the Fed’s actions amounted to the biggest monetary explosion that has ever occurred in the US.

Initially, the Fed and its apologists in the media assured the American people its actions wouldn’t cause severe price increases. But unfortunately, it didn’t take long to prove that absurd assertion false.

As soon as rising prices became apparent, the mainstream media and Fed claimed that the inflation was only “transitory” and that there was nothing to be worried about. Then, when the inflation was obviously not “transitory,” they told us “inflation was actually a good thing.”

Of course, they were dead wrong and knew it—they were gaslighting.

The truth is that inflation is out of control, and nothing can stop it.

Even according to the government’s own crooked CPI statistics—which understates reality—inflation is breaking through 40-year highs. That means the actual situation is much worse.

The US federal government’s deficit spending and debt are the most significant factors driving this money printing, resulting in drastic price increases.

The US federal government has the biggest debt in the history of the world. And it’s continuing to grow at a rapid, unstoppable pace.

It took until 1981 for the US government to rack up its first trillion in debt. After that, the second trillion only took four years. The next trillions came in increasingly shorter intervals.

Today, the US federal debt has gone parabolic and is well over $30 trillion.

If you earned $1 per second, it would take over 966,484 YEARS to pay off the US federal debt.

And that’s with the unrealistic assumption that it would stop growing.

The truth is, the debt will keep piling up unless Congress makes some politically impossible decisions to cut spending. But don’t count on that happening. In fact, they’re racing in the opposite direction now that they’ve normalized multitrillion-dollar deficits.

So, who is going to finance these incomprehensible shortfalls? The only entity capable is the Fed’s printing presses.

Allow me to simplify it in three steps.

Step #1: Congress spends trillions more than the federal government takes in from taxes.

Step #2: The Treasury issues debt to cover the difference.

Step #3: The Federal Reserve creates currency out of thin air to buy the debt.

In short, this insidious process is nothing more than legalized counterfeiting. It’s taxation without consent via currency debasement and is the true source of inflation. Mainstream media and economists perform incredible mental gymnastics to conceal and justify this fraud.

That’s how government spending, deficits, and the federal debt affect inflation.

As long as the average person doesn’t notice the rising prices, the system works well. However, once the price increases become painful enough, it creates political pressure for the Fed to combat inflation by raising interest rates.

The amount of federal debt is so extreme that even a return of interest rates to their historical average would mean paying an interest expense that would consume more than half of tax revenues. Interest expense would eclipse Social Security and defense spending and become the largest item in the federal budget.

Further, with price increases soaring to 40-year highs, a return to the historical average interest rate will not be enough to reign in inflation—not even close. A drastic rise in interest rates is needed—perhaps to 10% or higher. If that happened, it would mean that the US government is paying more for the interest expense than it takes in from taxes.

In short, the Federal Reserve is trapped.

Raising interest rates high enough to dent inflation would bankrupt the US government.

In short, the US government is fast approaching the financial endgame. It needs to raise interest rates to combat out-of-control inflation… but can’t because it would cause its bankruptcy.

In other words, it’s game over.

 

---

          This week’s radio program and podcast is a ‘best-of’ program featuring an interview with Alasdair Macleod, head of research at Goldmoney.

          I talk to Alasdair about the credit markets and the strong possibility of a looming crisis in the banking industry. If you missed this enlightening conversation you can listen now by clicking on the "Podcast" tab at the top of this page.

 

“Fishing is a delusion surrounded entirely by liars in old clothes.”

                                                        -Don Marquis