Tag Archives: Inflation

THE BEADY EYE ASKS. IS IT TRUE THAT INFLATION CAN BE BLAMED ON THE PANDEMIC/ THE WAR IN THE UKRAINE / THE COST OF ENGERY OR ANYTHING ELSE.

18 Friday Nov 2022

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( Five minute read) 

To know truly is to know by causes. — Francis Bacon

How to stop inflation?  Remove the cause!

Interestingly, all schemes or nostrums which ignore the cause, if and when adopted, sink us ever deeper into the mire.

As if inflation weren’t bad enough, most proffered “cures” would worsen the situation!

The number of UK businesses which went to the wall this year rose from 299,000 to nearly 330,000, according to official figures released just minutes before Jeremy Hunt’s emergency budget.

Inflation occurs when the money in circulation exceeds the production of commodities and services. Consequently, in an inflationary environment, the purchasing power of money falls and the prices of commodities and services rise. It is nothing more nor less than the printing of what the government has declared to be legal tender, that is, printing ever-increasing quantities of fiat money into the brutal economic reality. 

The biggest misunderstanding is that people do not realize that monetary policy is a major cause of the increase in inflation.

Chancellors tweak their parameters to suit their aims and ideology of their political parties.

All of the above contribute to Inflation, but the real reason is that’s Economies are put in front of the needs of people.

                                            WHEN IT COMES TO ENGLAND IT  IS A SELF INFLICTED WOUND.

Inflation hit 11.1% in the year to October, the highest for 41 years. It took over 12 years, not just a year, for inflation to rise by large amounts.

QUATIVE EASING TO SAVE THE BANKS. LEAVING THE EU – DUMPING THE SINGLE MARKET IN FAVOR OF FANTISTY TRADE DEALS.   PLOUGING TAX PAYERS MONEY INTO WHITE ELEPHENT – WORTHLESS/ OUT OF DATE PROJECTS – HIGHT SPEED RAIL (HS2)  – (The cost to taxpayers could rise from £17.1 billion to a massive £45.5 billion) – Out of date nuclear power stations.  £700 million  investment into Sizewell C, operated by France’s EDF in the east of England when tide generated power technology can do the job at half the cost.  

Financial statements are prepared on historical costs on the assumption that the unit of account (e.g., the pound) has a static value.

In reality, however, the value of money changes over time.

Fiscal rules seem to change almost annually these days, as new Sunak says he is on track to hit the new rules, which appears to be hardly surprising given that he has just devised them for himself.

Fixed assets are stated at historical costs in the balance sheet; they do not show the true current worth and are often unrealistically low.

In the context of rising prices, there is a significant overstatement of profits since the cost of goods sold is calculated on a historical cost basis and no allowance is made for the reduction in the purchasing power of money.

Also it is worth adding that an overstatement of profits results in heavy financial strain for a company in terms of heavy dividends, heavy taxation, and so on.

As inflation rates vary from year to year, an element of uncertainty characterizes the activities of the business. In order to incorporate realism into financial statements they should be adjusting so as to reflect, in a true and fair manner, the financial performance and the position of any enterprise over a particular period.

The inflation rate, as measured by the percentage change in the consumer price index.

Yes, there are international factors, such as the global supply chain and the Russian invasion of Ukraine, the Pandemic etc. 

However, inflation started rising before these international factors appeared, because interest rate were too low and the QUATIVE Easing increases money growth too rapidly.  

When the costs of government rise beyond the point where it is no longer politically expedient to defray the costs by direct tax levies, governments all over the world resort to an expansion of paper money — inflation — as a means of making up the difference. 

Out of the inflation of prices grew a speculating class; and, in the complete uncertainty as to the future, all business became a game of chance, and all businessmen, gamblers. The quick growth of stockjobbers and speculators. Instead of satisfaction with legitimate profits, came a passion for inordinate gains.

Inflation is not questioned, farmers want to be paid for not farming, other to receive benefits for not working, to have their medical care and children’s education subsidized,  to be protected against competition. The list is endless creating millions upon millions identifying self-interest with legal plunder!

The more political largess they can get — regardless of the force used as values became more and more uncertain, there was no longer any motive for care or economy, but every motive for immediate expenditure and present enjoyment. —the better.

We can’t compel all business ventures to adopt a “profit-sharing” procedure — employees as well as entrepreneurs sharing in the gains, because they would have to share in the losses also.

The cures are strictly a matter of inspired and intelligent leadership.

  • In 2021, the expenditure of the United Kingdom government is expected to be over one trillion British pounds, with the highest spending function being the 302 billion pounds expected to be spent on social protection, which includes pensions and other welfare benefits.

The UK government is hiking a windfall tax on oil and gas companies and extending the levy to electricity generators, as it scrambles to balance its budget amid an economic downturn. It is also investing in nuclear power for the first time in decades. Beginning January 1, the Energy Profits Levy on oil and gas companies will increase from 25% to 35% and remain in place until the end of March 2028. That takes the total tax on the sector to 75%, according to the Treasury.. together, these measures will raise £14 billion next year and more than £55 billion between 2022 and 2028.

SO HERE IS THE SOLUTION TO INFLATION:

So lets say that over this period they were to destructing the benefit state and replacing it with look after yourselves state, funded by these the saving on benefits and a tax on  profit for profit sake and replace the Basic Living ( The Basic living wage does not alleviate  poverty (it only increases the gap between the poor and the rich) while with a Basic Income, equipping  people to look after themselves -level up would not be just good for the economy but it would get rid of foodbanks, strikes. etc. – restoring price stability to the market place.  

In doing so, it might just stave off a future where unemployment surges, wages stagnate, retirement funds bleed value, and vast numbers of people are made even more economically insecure in order to satisfy economic orthodoxies that are indifferent to people lives. 

The thesis today is that inflation must be brought down is the culmination of almost a century of central bank orthodoxies. But that leaves one rather crucial question: is it true?

 Past mistakes can’t be undone, but future ones can be avoided.

The sense that inflation destroys wealth and creates the conditions for political instability has deep roots but all production creates its own purchasing power!

All in all, this UK budget ducked the opportunity to make serious reforms to the way wealth is taxed.

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Contact: bobdilon33@gmail,com 

 

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THE BEADY EYE LOOKS AT INFLATION

05 Monday Sep 2022

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What is inflation?

One can look or think of it in various ways, as it comes in many forms.

The fact is that inflation is a far more complex phenomenon than one might initially assume.

The Big Bang for instance was it caused by inflation?

Did it happen at the begging or the end of something inflating externally or internally.

If it was external it could only have happened on a quantum bases – which means that there was something there before the Big bang that existed other than eternal inflation.

Whether it did or not, during inflation space is repelling space, so there is more space and more repulsion. Pass events cause present events are ever changing is a quantum fluctuation.

The defining characteristic of inflation is its exponential rate of growth.

All inflation whether its space, money, planetary resource use, or the human population, doubles in every fixed interval of time.

It starts slowly, almost flat and then goes up and up till vertical, hitting a material limit.

This is not so in space where it can go on endlessly, according to Einstein theory of relativity.

Indeed it is faster then light, but with the help of gravity it is slowed down as it passes through different density of the universe.

However this is not true in the Quantum world of particles and antimatter which can burst out of nothing, coming back together and disappearing in a flash.

This will be the reason that the James Webb telescope will not discover God.

Unfortunate due to inflation it is looking into the past with the future always over the horizon. Beyond that we have no way now or ever finding data.  Here we reach the limits of language and are faced with the choice of mathematics or myth. 

Thank God. 

—————–

There are zillions of particles popping out of the vacuum of space and disappearing.

Indeed they don’t even come into existence unless they are observed.

However the real question is how does energy turn into particles. What is the actual process of inflation doing. I dont think we know.

Where did it come from in the first place, converting its expansion into Entropy – disorder.

All ordinary matter is however, everything made of atoms including the protons and neutrons that make up an atom. So it stands to reason that inflation after the Big Bang was caused by atoms that were there before inflation existed, in a dormant state.

This then leaves us with no way to explain why individual quantum events happen – they have no cause, but they do happen is standard physics, creating an eternal inflation of creativity.

We can only rely on predictions because probability obeys deterministic laws.

In the end there is no deeper source of meaning for us than to experience our own lives as reflecting the nature and origin of our universe.

For those who demand the Ultimate truth there is no way to take even a single step beyond what other people have already thought.

Lets return to earth.

At its most basic level, inflation is a general increase in prices across the economy and is well-known to all of us. This can lead to fears of possible hyperinflation, a devastating scenario in which inflation rises rapidly out of control or Stagflation (a time of economic stagnation combined with inflation) which also wreak havoc.

Although numerous theories exist, arguably the two most influential schools of thought on inflation are those of Keynesian and Monetarist economics.

Keynesian economists argue inflation results from economic pressures such as the increased cost of production and look to government intervention as a solution; monetarist economists believe inflation stems from the expansion of the money supply and that central banks should maintain stable growth for the money supply in line with GDP

The Keynesian school believes inflation results from economic pressures such as rising costs of production or increases in aggregate demand. Specifically, they distinguish between two broad types of inflation: cost-push inflation and demand-pull inflation.

The Monetarist view is perfectly encapsulated by Friedman’s remark that “inflation is always and everywhere a monetary phenomenon.” According to this view, the principal factor underlying inflation has little to do with things like labour, materials costs, or consumer demand. Instead, it is all about the supply of money.

According to the quantity theory of money, if the amount of money in an economy doubles, all else equal, price levels will also double.

This means that the consumer will pay twice as much for the same amount of goods and services. This increase in price levels will eventually result in a rising inflation level.

Then you have negative inflation when prices drop for various reasons.

What are the Causes of Inflation. 

What causes inflation is significantly complex.

An increase in the supply of money is the root of inflation, though this can play out through different mechanisms in the economy. A country’s money supply can be increased by the monetary authorities by:

  • Printing and giving away more money to citizens.
  • Legally devaluing (reducing the value of) the legal tender currency.
  • Loaning new money into existence as reserve account credits through the banking system by purchasing government bonds from banks on the secondary market (the most common method)

Now I am no quantum expert or scientist but to my mind the world economy is now dependent on electronic products, all subject to the Quantum theory.

Smart phones, laptops, computers, and algorithms all fuelling inflation of knowledge and falsehoods.  The world of computing is full of buzzwords: AI, supercomputers, machine learning, the cloud, quantum computing and more.

One word in particular is used throughout computing – algorithm.

Computers string algorithms together in complex fashions to produce more algorithms. So, an algorithm is the process a computer uses to transform input data into output data. Every piece of technology that you touch involves many algorithms.

They are black boxes—neither the company using them nor the people making them take responsibility for how they can wreck lives and reinforce stereotypes.

There is no knowledge of what they are even being judged on.

The people making the algorithms don’t take responsibility for users of their code and the people using algorithms place responsibility on the creators.

Algorithms are aimed at optimizing everything including inflation.  

They, that is profit seeking algorithms have put too much control in the hands of corporations and governments, perpetuate bias, create filter bubbles, cut choices, creativity and serendipity, and could result in greater unemployment and are no doubt at this very moment manipulating inflation.

The question now is are we living in two realities because they coexist with all advances in technology. In fact, everything people see and do on the web is a product of algorithms.

The use of algorithms is spreading as massive amounts of data are being created, captured and analysed by businesses and governments. Some are calling this the Age of Algorithms and predicting that the future of algorithms is tied to machine learning and deep learning that will get better and better at an ever-faster pace.

They will create new ways to misrepresent reality and perpetuate falsehoods.

Can anything be done to stop them plundering the world for short term profit?

Yes but it has to done now.

The adoption of data-driven technology affects every aspect of our society and its use is creating opportunities as well as new ethical challenges that are coming with climate change.

In the world before AI there were many different concepts of fairness. Once we introduce complex algorithms to decision-making systems, that range of definitions multiplies rapidly.

Inequality and unfairness have complex causes but society may reasonably conclude that justice requires decision-making processes to be designed so that human judgement can intervene where needed to achieve fair and reasonable outcomes for each person, informed by individual evidence.

The risk is growing as algorithms, and the datasets that feed them, become increasingly complex.

All algorithms programs should be vetted for ownership, transparency, bias, before being allowed to operate in a sustainable way.

Don’t worry you will always be around because each of us is an atomic pastiche an atom of you will always be around.

We are made of material created and ejected into the Galaxy by stars.

Try inflating that!

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THE BEADY EYE ASK: JUST WHAT IS INFLATION IN ECONOMIC TERMS?

11 Saturday Jun 2022

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An economist will tell you that inflation is the term used to describe the general rise in the price of goods and services over a certain period. Put another way, inflation is when money loses value over time.

I SAY THERE IS MORE TO IT THAN THAT.

Inflation doesn’t impact all consumers equally but plays a significant role in an economy by redistributing wealth, with consumers becoming poorer, limiting their disposable income.

Ever since the pandemic outbreak, the woes of the common man have been multiplying every day with gas and energy price increases leading the way to higher inflation with no gaps to stop it. 

We and governments are unable to cut short our expenses so there’s a domino effect with the UK going through a ringer, especially when it comes to its economy.

A combination of Quantitive Easing, Brexit, the Pandemic, the Ukrainian-Russian war, and Supply/demand shortages, not to mention other hair brain projects have all added to inflation.

It certainly appears that things are going to get worse. Maybe much worse, so what can be done?

Much of the economy depends on consumer confidence, right?

We can agree that a healthy economy is the only solution to maintaining or gaining a better standard of living for everyone. Without that, we can forget about solving any “existential problems.”

Taxpayers already toil half their working lives just to pay off the taxman.File photo dated 24/01/18 of UK five pound, ten pound, twenty pound and fifty pound notes with one pound coins, as The Government has promised to fund violence reduction units (VRUs) for the next three years in a bid to tackle serious crime. PA Photo. Issue date: Friday April 1, 2022. The Home Office has vowed to spend an additional ?64 million on VRUs over the next 12 months after research suggested they were helping cut violent crime. See PA story POLITICS Violence. Photo credit should read: Dominic Lipinski/PA Wire

Governments get their revenue from taxation.

It’s been calculated that tax revenue will total £873 billion in 2020/2021, £63 billion more than in 2019/2020 (£810 billion). Public spending is expected to be £928 billion, £86 billion more than it was last year (£842 billion). This is £55 billion more than what the tax revenue will be this year.

The Covid-19 pandemic resulted in very high levels of public spending. Current estimates of the cost of Government measures announced range from about £310 to £410 billion. This is the equivalent of about £4,600 to £6,100 per person in the UK.

Yet taxes should be transparent and understandable. But how many people know how much tax is on a pint of beer? Or a flight to Marbella? Or a liter of petrol? Having so many different indirect taxes removes transparency and makes ethical decision-making more difficult.

Currently, 31.4 million must file an often complicated tax return.Turning up the tax heat in the UK

In the United Kingdom, the value-added tax or value-added tax, VAT was introduced in 1973, replacing Purchase Tax, and is the third-largest source of government revenue, after income tax and National Insurance.

As VAT is levied on revenues and not profits it harms low-margin businesses disproportionately. As any fool knows, the first principle of VAT is that you should be able to calculate it in your head.

It is the one stealth tax that the right doesn’t seem to mind.  

It seems that this tax is the wrong way round.

We shouldn’t be taxing businesses that add value, but those that do not.

For instance, are Internet sales taxable?  

Here is the problem. Knowing and understanding are two different things.

There are two different sorts of inflation.

Demand-pull inflation is when demand for a particular product or service outstrips supply, forcing businesses to raise costs.

This combined with Cost-push inflation is caused by the rise in raw materials prices.

We know that capitalism for profits is out of control. 

We know that what’s vital is for people to feel empowered to hold corporations accountable but don’t hamstring them.

We know that government interventions lag behind what is needed and this puts additional strain on businesses that will start the cycle again by laying off more workers. 

We know that the latest inflation surge is primarily driven by soaring energy and fuel prices and the war in Ukraine also pushing food prices higher and the Russia-Ukraine conflict is expected to drive these even higher.

We know that tax reform is now essential and the question is whether the various tax reliefs that people currently enjoy are ‘fit for purpose. The ever-widening gap between the nations’ income from tax take and expenditure on social and health care now makes a review an imperative to put the UK’s public finances back on a more sustainable footing.

We know that the National Debt has steadily grown as a result of essential expenditure during both war and peace, and the payment of ‘interest’ on it has long been an unavoidable item of annual expenditure

“Taxation is the price we pay for civilization.” Taxation represents the replacement of the handshakes of commerce with the threat of force as an instrument for human governance.

Taxation is an instrument in a continuing war over how human relationships are to be constituted.

As taxation recedes, handshakes and promises become more prominent in human governance. As taxation expands, duress, threats, and force take on greater significance.

Because the mere possession of the power to employ force almost inevitably expand its use beyond its necessary limits

If taxes were replaced by voluntary contributions, it would be impossible for anyone to claim that the state was involved in expropriating private property. At the same time, it is argued, that people would have strong incentives to take free rides on the contributions of others. As a result, services such as civil order and national security, which we all value, are likely to be underfunded.

A central tenet of democratic ideology is the belief that taxation is something we do to ourselves for our common benefit and nondiscriminatory taxation impedes efforts to use taxation to reward or punish certain forms of activity. Yet a great deal of tax legislation rewards or punishes specific forms of activity.

Once a government acquires the power to reward or punish particular types of activity, the principle of broad-based, nondiscriminatory taxation quickly evaporates under the heat of politics. The result is unlimited power to tax, where the only limit on the reach of the tax collector is the pragmatic one of political pressure and votes.

|s there any solution? 

What are all benefits that were withdrawn over a period of ten years and replaced by a basic living wage?

The vat was replaced by a sales tax not applicable to essentials. Sales tax hits consumption instead of income. That means we’ll consume less and thus decrease the national carbon footprint.

Then at least people would have the power over where when and how they spend.   

“Taxation is theft”

When the government plans to spend money on something (support for the arts, a space program, a national retirement program, and so on), one should ask: would it be permissible to steal from people in order to run this sort of program? If not, then it is not permissible to tax people in order to run the program, since taxation is theft. 

As we see over and over allowing some individuals to assume the role of a government, possessed of the unique powers associated therewith, is unlikely to compel those individuals to act more nobly or selflessly.

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THE FUTURE OF TAXATION.

02 Tuesday Dec 2014

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Tax Due Warning - A single, angled spotlight reveals a...

A common thief does not typically act with greater force or stealth.

I would guess like me you have tried to get your head around the taxes you pay without much success.

With the rising inequality concerns maybe it time you did as taxation has a future that will affect you and your love ones.

But where, and in what guise? Let’s have a look.

Slow population growth is depressing income growth, which leads to higher taxes.

Virtually every government could pay off its debts by taxing wealth.

Luckily for the rich such taxes are often politically unacceptable.

In other words, fiscal problems are best regarded as problems of dysfunctional governance by governments that are selling off state assets into Privatization until there will not be enough national wealth to pay off any debts.

Anyway for the purpose of this post it is essential that we try to appreciate the difference between real taxes and current (or nominal) taxes.

The real tax over any significant period is the level of government spending in relation to national output. The higher public spending as a percentage of GDP, the higher the real tax. That amount must in time be transferred from private to public hands—be it now or later.

The current tax, for its part, is the amount actually paid to a government in any given period, and is almost never equal to the real tax.

Got it. No. Shame on you. Try again.

A current tax lower than the real tax (that is, a public deficit) implies higher current taxes in the future, while a current tax higher than the real
tax (a public surplus—a phenomenon observable in only three of the past 50 years) implies lower current taxes in the future.

Now. You have.

So the stated political orientation of the administration presiding over a gap between current and real taxation—be it social democratic or of the supply side right—does not matter.

Because deferred taxes are simply claims against the public.

There are two ways to meet these claims:

1) higher current taxes in some future period or 2) inflating the claims away.

Inflation, which generally induces a shift of wealth from private to public hands, is the functional equivalent of a tax increase. These relations do not follow from any policy or ideology, but are purely matters of arithmetic.

Any clearer.? It’s of no matter.

Because what appears on the surface to be public debate over the appropriate level of taxation—and this goes on all the time—is in fact political maneuver by interested constituencies to get out of the line of fire of inevitable tax increases while deflecting the higher taxes onto someone else.

Now you have.

Different taxes do have different allocative effects.

Future taxes will perpetuate or even compound the misallocative effects of the present tax system.

Taxes in the next ten years, even though considerably higher than today’s, will nonetheless be insufficient, in all likelihood, to fill the revenue gap that opened wide during the last ten.

Inflation is all that remains to look forward to.

For a governments it will be like letting go to the pull of gravity.

Most wealth has already been subjected to income and other taxes, perhaps multiple times. It doesn’t seem fair to the holders of that wealth to suddenly pay additional taxes on assets that they thought were in the clear, and such taxes would signal that previous policy has failed.

It seems to me that on both ends of the political spectrum there is remarkably little concern with the allocative effects of taxation in its various forms.

However it matters how you tax if we are to halt the growing inequality in our life styles as over the next 10 to 15 years current taxes will increase mightily. Why?  Because our own consumption, fueled by debt, outstripped our incomes in recent years, while foreign savers, predominantly from Asia/China/and the Far East financed the bulk of new investment in our economies.

Why aren’t foreign savers put off by double tax on capital income?

The answer is that they would be, if they paid it. But they don’t.

Another reason it that the massive fiscal stimulus that have been pumped into our economies by Quantitative easing and the selling off of state Assets (To Sovereign Wealth Funds, see previous posts) will in their wake pull up current taxes or spread inflation, another form of higher taxation —whether consumers or savers, suppliers of capital or suppliers of labor, or both in a maelstrom of inflation.

When income from labor is saved rather than consumed, the income from that saving (now capital income, in economic terms) is taxed again.

This “second” tax on saving makes the tax cost of capital income greater than that of labor income spent on immediate consumption. The two separate layers of income tax imposed on corporate earnings and then again on dividends distributed to shareholders actually imply a third tax on corporate profits. This goes far toward explaining why we don’t save.

What can be done:

What is needed is a shift in the burden of taxation away from capital income and onto consumption.  In short, some form of consumption tax should be the predominant national tax.

The problem with a value-added tax is that people can to a considerable extent earn their incomes in one tax environment and spend them (either at retail on vacation or wholesale in retirement) in a different (and VAT-free) environment, so that ultimately both their incomes and their consumption are untaxed.

Value-added taxes and payroll taxes are analogous to an income tax that is imposed territorialy, whereas a tax on consumed income is imposed on worldwide income, minus the component of saving, and is therefore a tax on the worldwide consumption of a taxpayer.

(Turnover-type taxes such as sales taxes and value-added taxes are widely and correctly understood as consumption taxes. So is any tax that does not reach capital income.)

A tax on consumed income is an income tax in which personal saving is deducible from taxable income, thus excluding capital income and leaving only the amount of income that is consumed subject to current taxation.

In stead of contemplating such a tax in many EU Member States we got political, academic and public debate on wealth taxation which always gains traction in times of strained public finances.

The question is who ultimately bears the burden of wealth taxation (tax incidence)

The existence of a blurry frontier between capital and labor, income for the high-income earners, the role of transparency and automatic exchange of information in facilitating tax compliance and the serious political economy constraints makes any form of wealth tax unworkable.

Just imagine the difficulty to evaluate one’s wealth and the administrative costs along with the risks of tax evasion and capital flight.

Many people have become distressed about their taxes because they have been led to believe that the property they acquired would not he taxed to the extent that it has been. Accordingly, they have paid prices for the property that have reflected those expectations. They may be the reasons they are “mad as hell” simply because they feel that they have been misled by their government and that they not only have had to give up taxes but also have had to give up wealth in terms of reduced market prices for their property.

Economics have performed the heroic task of measuring wealth for eight leading economies: the United States, Canada, Britain, France, Italy, Germany, Japan and Australia.

Their estimates reveal some striking trends. For instance, wealth accumulation in these eight countries has risen relative to yearly production.

Wealth-to-income ratios in these nations climbed from a range of 200 to 300 percent in 1970 to a range of 400 to 600 percent in 2010. Behind the changing ratios is some bad news, namely that slow productivity growth and but also some good news — that relative peace and capital gains have preserved wealth up to now.

Virtual economies pose a real-world tax compliance risk, even if citizens aren’t purposefully shielding their money.

No one has a clue on how to manage the Planet. The only way forward is a consumption tax regime.