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Inflation, A Commentary by James Knupp


Wow, What has happened?

The Deficit Hawks who plagued the previous administration have now added $3 Trillion in increasing deficit via Tax Reduction and Spending Bills (with lots of pet projects) to the already largest debt in the world. And the US has the world’s 8th highest debt to GDP ratio at 106.1%. (Greece in is number one.) That means we, you and I (the US), owe more than what all of US make in a whole year. With the wall, it could get worse.

A number of economists believe these acts significantly increase the risk of higher interest rates and inflation.

That’s no big deal right?

In order to finance this deficit spending the US will have to issue more debt securities requiring more interest payments…and…. if buyers feel the US is taking higher risks they may demand higher interest rates to buy the securities. It all could mean higher costs and less money to use for US programs because the money is going to interest.

Take it further. There is also greater risk for higher domestic interest rates. This means companies could pay more for borrowing and may then raise prices to pass those increased costs along to their customers, you and I. So, pricing pressures could build for food, clothing, mortgages, construction materials, fuel, and everything else.

As prices go up over time, it is called inflation? Inflation means the dollar you have will not have same value in the future. We have experienced modest 2% give or take inflation over the last few years. At this rate the dollar losses 20% of its value in 10 years. So in 10 years you will need $1.20 to buy that $1 worth of stuff today. Just for speculation lets say inflation is pushed to 3%, 4% or 5%. At these rates of inflation we’ll need $1.34, $1.48 or $1.63 respectively in 10 years to buy today’s $1 worth of stuff. Will your income keep you afloat then?

Inflation, while it affects us all, is the most cruel on the poor and those on fixed incomes. Do you want this risk?

Do Rob Wittman’s votes represent you on this issue? If not, would a change in representation improve our chances to avoid these risks?

What do you think Rob Wittman? How will you fix this? Will you cut expenses like Medicare or Social Security to avoid inflation?

James Knupp

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