Battling Inflation

What would happen if we had an economic stimulus plan that helped to

• decrease interest rates
• and to free up capital normally spent on tax compliance?

A major problem that has occurred with the housing debacle was created by fluctuating interest rates that sent a lot of home owners packing because they could not afford the raised mortgage payment.

Interest rates can drive inflation if not monitored correctly. I am not an expert, but from what I do understand, inflation is due to bad borrowing and bad economic practices. Also, if I may deduce, interest helps to pull excess money out of circulation thereby creating a pseudo increase in the value of the dollar which helps to stabilize inflated pricing by creating more demand for money.

Raise the rates too high and the economy becomes sluggish making it harder to afford some products and services. Lower rates too much and inflation begins to rage. It is an indefinite balancing act.

Much of this is caused by the overspending of the federal government. The government (executive and legislative) has for the last eight years spend more than any previous administration. They have spent so much that in order to cover our spending our government has turned to foreign countries to back our borrowing. Now we have a situation that proves why we need a an amendment of some kind that forces Congress to balance the budget and pay off our debt.

Our government has decided that the best practice to fighting our money problems is to print more money (money that is not backed by any physical value - like gold). Printing more money decreases the value of the dollar and again you battle inflation because a deflated dollar means you need more dollars to buy a product.

So what is the answer?

Why not adjust the interest rate for growth (that means lower it). Then balance the federal budget and provide for immediate repaying of all outstanding federal debt! Then pass a balanced budget amendment. Then replace the current tax code with the FairTax because it is the only tax code that can promise the two issues I mentioned at the beginning of this blog.

Okay this is my opinion, what's yours? And yes, as I stated, I am not an expert so if you understand inflation better than me then by all means correct me.

Oh and look at this: The FairTax and economic growth or A Macroeconomic Analysis of the FairTax Proposal (Arduin, Laffer & Moore Econometrics)