Home » Letters to Stan » Stealth pay cuts – Why wages don’t have to come down to come down
            

Stealth pay cuts – Why wages don’t have to come down to come down

First, an expanding government lives on what taxpayers give it. Then, it lives on what taxpayers give it, plus what it can borrow from them. Then, it spends everything that it can squeeze out of taxpayers, plus what it plans to squeeze out of generations of taxpayers who haven’t been born yet. Finally, when it has crushed all the blood out of the turnips, current and future, it spends money that no taxpayer will ever earn or pay in taxes. It just prints money. (The Daily Reckoning)

 

I think that’s a great synopsis, Stan, of exactly what our government has done:

Another interesting thought is that one reason wages are not dropping much, in spite of a great deal f unemployment during the Great Recession, is because they are effectively dropping. Money is becoming worth less and less in terms of what it can buy because the government prints more and more of it. As prices inflate along with the money supply, companies are getting more for their product. If they keep paying the same for their labor, it means labor is continually becoming a less significant cost in the total price.

Everyone realizes that inflation means there is an automatic pay cut in real pay just by holding pay even while inflation grows. What people don’t think about is that this inflation means an automatic savings in labor costs when companies are not adding an annual COLA. Businesses are raising the prices of their products to compensate for the rise in price of the goods that go into their products, so their labor is becoming a less significant factor. Unemployment is allowing them to freeze wages.

As for waiting until the Fed pumps more money into the economy to see hyperinflation … all that money pumped in is caught in ice jams. When the jams start to break up and the river starts to cash flow, it will be quite a swell of flood of waters downstream. That’s hyperinflation

–David