Ted Bauman Explains The Dangers Of Tax Cuts Relating to Inflation

Monetary theory states that the total supply of money divided by the economies real output sets the average prices. If output is not as fast as the growth of the supply of money inflation results. There should be inflation with the gap between liquidity and the economy’s growth, but central banks only create reserves for the banking system and do not print money. Learn more at Seeking Alpha about Ted Bauman

Banks making loans against reserves is what creates money. When loans are not made, or they do not enter the real economy there is no pressure for inflation in the economy of the consumer. QE is a different sort of liquidity though. It involved the purchasing of bad debt that was held by the housing bubble of 2008 by central banks.

The banks could have used this for loans but that would have caused inflation for consumers because of increasing the money in circulation. Demand is not created by supply when it comes to lending. Banks avoid lending money when interest rates are to low unless it is in the form of auto loans or credit cards where lending rates are higher. Consumers were avoiding purchases in favor of paying old debt down. Corporations cut costs by not investing and reducing staff which increase profits. The money ended up on Wall Street. Read more about Ted Bauman at

Since 2009 the economy has been growing at a rate of three percent and is almost at full employment. This means ordinary people are starting to get disposable income. The seasonally adjust income is at two percent which is the Federal target. Tax cuts will lead to inflation instead of investment. Employees are already demanding the increased wages they have been promised which will lead to higher prices.

Interest rates will rise faster, lending will be done more recklessly, and the stock market bubble will increase because of excess cash resulting from tax cuts at a corporate level.

Living in Atlanta, Georgia with his family Ted Bauman is on a mission to teach people how to be financially independent. He attempts to educate people on tax laws, investments and other issues that can aid them in achieving financial success.




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