To the Editor:
There is a direct link between federal deficits and the price of homes in Goffstown. This linkage is often confusing to grasp, yet it is a vital story of where the US is today, financially speaking.
When the federal government spends more than it takes in from taxation, the US has a budget deficit.
When Goffstown has a budget deficit, the property taxes are simply raised to cover the deficiency.
When the US has a budget deficit, the money “printing presses” (very simply stated) are “cranked up” instead of raising federal taxes directly. This action has many consequences.
When the US “cranks up” the money “printing presses”, the value of paper money goes down and it takes more of it to buy something…anything…all the things that we need to buy to live!
If it takes more money to buy something, then it’s price has gone up. Reread that until you grasp it!
This increasing of the money supply is called monetary inflation and is no stranger in world history.
Goffstown home prices going up (all other things being equal) is a symptom of monetary inflation and not inflation itself. It is a consequence of the government using a “stealth” tax instead of a direct tax.
Rising home prices from the excess printing of money has nothing to do with the value of a home, even though most people incorrectly feel wealthier when the price (not value) of their house goes up.
The excess printing of money must eventually have a standard outcome as evidenced from history.
The embedded graphic depicts that outcome, which has never changed throughout history, when a country devalues its money and tries to get “something for nothing” through monetary inflation.
Which is not to say that rising prices aren’t popular—they are very popular: banks love inflation (they charge interest on money that is “created from nothing”); politicians love to spend money from the higher property taxes; people borrow against the perceived increases in home prices (not value); wealth is transferred to the entity that borrows money first making some people very rich (the first borrowers later sell their price inflated asset at a profit – “something for nothing”.)
Unfortunately, there are consequences with rising prices: pressure on wages to go up; most prices go up; rising public sector wages and prices force up property taxes; rising wages force multi-national companies to move to other countries; the unemployment rate goes up; two wage earners per family must work to keep up with the rising “cost of living;” “family values” deteriorate as there is no one really at home to raise the kids during the day. Day care centers become the “parent of last resort.”
All of this is still not the worst problem: “What goes up must come down” is the real problem!
Inflation has an evil twin named deflation and all of the above processes are reversed: prices go down; private sector wages go down; revenues go down; property taxes should go down; the money supply goes down (that is the correct definition of deflation) and all the other normal consequences of monetary deflation. This paradox usually sets up a conflict between the “haves and the “have-nots.”
The US is now being visited by the evil twin deflation and we will get to experience what happens.
Diffused through all of this is “garden variety” greed: greedy banks, unions, politicians and people.
I just thought that you had a “Right to Know (R2K).”