Is Inflation Due To Government Overspending An Indirect Tax On People?Posted by Nadeem Minhas on May 19, 2021 at 8:47 am
There seem to be two types of inflation.
One caused by heated economy, higher incomes and extra disposable incomes. Such inflation normally happens in developed countries.
In less developed countries, inflation is caused by government overspending, printing money and thus causing drop in currency values. This basically reduces the value of people’s income and savings. Basically the lost value is transferred to the government. Normally governments tax first and then spend. But in the above case, government spends first and tax is imposed on people indirectly in the form of inflation.
For religious purposes could inflation be considered a tax?
May 19, 2021 at 9:50 am
Inflation is essentially a hidden Tax on the Public Which essentially increases the Debt on Both the government and the Public… Inflation is generally caused by the Unbalanced supply and Expansion of Money in the Economy by the Central Bank, essentially the creation of Fiat Currency through Fractional Reserve Banking System with no backing(gold/silver or otherwise) except the public “trust” on the central bank. The Control of Monetary Policy by the Central Bank is used for Manipulating the Value of Currency. Essentially leaving the Currency in the Hands of Speculators in the Stock Markets controlled by wealthy banking interests where the Currency trades with free floating against the US Dollar(Which makes sure that the US Dollar always stays on top and the local Currency gets devalued). The Central Bank Loans this money to the Government. The Government essentially controls only the Fiscal policy to control massive amounts of differences between its spending and revenues. It has to spend more Because the Currency is depreciating which causes its loans to grow even further. Essentially Accumulating more debt from the Central Bank. At the end of the Day the Government also faces bankruptcy as its unable to pay back its loans to wealthy interests. Huge Expansion of Fiat Currency on the Supply end is used for Wealth Creation for the Rich while there is Less demand for it in the common Public. The Common Public is unable to spend more due to high prices caused by Devaluation of Currency. There is less demand for goods and services in the economy as Purchasing Power of the common Public drops.. At the Same Time The Currency is devalued more to control the expansion of money. The Central bank has no other policy to control inflation other than to expand the money supply even further which in turns devalues the currency even more causing more inflation in a viscous cycle.. The Other Factor is the control of Interest Rates by the Central Bank. Keeping the Interest rates high means More Profit for the rich & the Central Bank but keeps the poor with empty pockets. The middle class is left with holding and accumulating a huge debt burden. They borrow for their Homes, Cars and even University Tuition fee like there is no tomorrow. This in turn leaves them bankrupt after a while as they are unable to sustain their debts and fulfill their loan obligations owning to strict conditions and massive interest rates. The Private Banks than own the Properties transferring true wealth to the bank and corporations. The Government which is already suffering from Huge Debt obligations has no choice but to Cut Social Spending, Healthcare and Education, Development spending for the Public. For increasing its revenues temporarily in order to avoid bankruptcy and survival, it also reduces state regulation on Central Bank and State owned Corporations essentially Privatizing them and selling them to Corporate and Banking interests. Hence the Central Bank gets even more “independent & Autonomous” than the Government and the state itself. Essentially a parallel state within a state, this bank, acts as a parallel institution answerable to none except the Chairman of board of Governors of Central Bank. Meaning the Bankers themselves instead of the Public institutions like Investigations agencies and Courts. Special Exception is granted for it to become “independent and over and above the Law” as one can read in the State Bank of Pakistan Ordinance 2021. The Central Bank makes its own policies with zero input from the Federal Government or its Representatives.
In Simple words: Pakistan ka Allah hi Hafiz 😀
May 19, 2021 at 10:02 am
Thanks Fahad for such comprehensive insight!
May 19, 2021 at 10:14 am
Sir Bass Duaoon main yaad rakhain.. 😀
May 19, 2021 at 10:44 am
For Fractional Reserve Banking System Watch below video: Time Stamp: 06:55 – 14:53
May 19, 2021 at 10:48 am
Part 2: Fractional Reserve Banking System:
May 19, 2021 at 6:43 pm
Inflation is an artifact of the free market economy. It is true that one of the reasons of rise in inflation is government printing money to finance their deficit, however, this is neither the only cause nor the root cause. Also in most cases, inflation is unavoidable unless we have a completely self sufficient country, of which we have none.
Inflation is generally controlled in certain countries by increasing or decreasing GDP as well as the rate of unemployment. In a free market economy, commodities are traded in global markets. Depending upon supply and demand, the commodity prices rise and fall, effecting any given country’s GDP. This causes the inflation rate to change.
Moreover, when a country prospers, unemployment decreases and the labor cost increases. This is coupled with increased demand as compared to supply because more buyers can now enter the market. This results in increased prices and an overall higher cost of living (inflation) as compared to a benchmark, e.g. Consumer Price Index (CPI).
To sum it up, considering inflation as an indirect tax is not always accurate. Seldom that can be the case, however, a majority of times it’s much more complicated than that.
“For religious purposes could inflation be considered a tax?“
May 20, 2021 at 1:17 am
Salam Faisal Bro.
Thanks for your response. Plz Let me Clarify my views Sir. The point that we have a “Free” Market economy is a myth. We Need to think critically especially after the Global economic crash of 2008 in which public lost their jobs, houses, saving, health insurance, social security and the crash had a huge toll on the social & political life of the world especially the West. Extreme Inequality, Unemployment, Hyper Inflation, Destruction of Middle Class, Destruction of Family life, Higher Divorce rates, The Rise of Far Right, Racism, Sexism, Tribalism, Hatred, Bigotry, Migrant Crises, Brexit and Violence on the streets resulted because of these economic losses. The Corporations Themselves suffered Bankruptcy. While their Shareholders & CEOs walked out with millions in Financial compensation while Thousands of employees jobless with zero compensation. We are still in the after effect and shock of that crash right now. Global Recession is still going on with predictions of another economic meltdown soon. The Pandemic has caused the Job losses even further just so that handful of elite can Profit more and cant bear some Loss. And the Rise of Xenophobia is even great.
Let me explain in detail here. By “Free” we tend to think that the Economy is based on the Principles of Freedom/Liberty and Democracy. Actually its the Opposite of that. Its a Dictatorship of Wealthy Elite. The Market Economy is extremely centralized with a Private Central Bank Subsidized/Funded & Dominated by a Few Big Private Banks, Investment Banks, Insurance Corporations & The Stock Markets which are nothing but institutions of Speculation on Public Money serving the Stocks of their Handful of Wealthy Owners. Hence The Economy is Virtually Controlled through Dictatorship of a few Wealthy Banking Interests. The Central Bank(Federal Reserve in US) is not a Government entity and neither are its members appointed by Federal Government. Its a Private bank funded by Few Private Banking Interests which makes and control its policies based on their individual banking & Corporate interests i.e. Profit making. The Government actually borrows Money from the Central Bank which it has to pay back With Interest to the Banks. The Central Banks Control and regulate the Monetary Policy Not the Government. It Prints the Money and also has Control over the amount of money to Print as well as the amount of money in circulation within the Economy. We could only Call the Economy as Free If the Economy is decentralized and the Public has ownership in the institutions of Economy(specially Corporations) through their Democratically elected Representatives. Right Now Capitalism is literally the Wealthy Rich Elite Controlling the Masses and their Politics through their Money. We See in the US how the Corporations buy out Candidates & even Party leadership on both sides of the aisle. Most of the Politicians serve the interests of the wealthy corporate Donors.
Also the Governing Structure of a bank or any other Corporation(Public or Private) Is Dictatorial in Nature and could hardly be called as Free or Democratic in Nature. It makes sure that the institution only works for self interest of Its Owners rather than for the general public or even its Employees. The Corporation is controlled by Few Major Share Holders and the Board of Directors which are appointed by these Major share holders. 1 share = 1 vote here. Which means that If someone has a million shares in a company than he has million votes at the table. You get the Point. These Few Share Holders and their Appointed Board of directors make all the decisions in a Corporation and the Rest of the Employees in it have absolutely no say/ zero input in the decision making process and hence its consequences. Whatever you may call this system, Oligarchy etc its certainly not based on liberty and Democracy.
For in a Democratic institution the decisions are made equally by all members/Employees through Democratic voting based on the Principle of 1 man = 1 vote irrespective of how much wealth or Capital he/she has. The Ownership is mutual in a Democratic institution. The Current Capitalist Corporation is the antithesis of Democracy. In a Democratic institution For example In Politics. All Citizens equally vote in the election process so that they have a say in the decision making process of their leaders & they be held accountable and removed if they don’t perform through democratic voting. By contrast in a Capitalist Corporation The Major Share Holders are never democratically elected by its employees but rather through power of wealth. and the Rest of the Employees are kept out from the decision making process Legally and by design. Hence the worker get fired when the Company decides to lay off its employees based on its declining revenues or loss instead of Profit or making more Profit. The reason could be Automation, High Labor cost etc etc.
So the Question now is: what’s the Alternative to Capitalist Corporation. The answer is within the critique. We Need a Democratic Workplace. Democratize the Enterprise. Now a days its called Worker Co-ops or Worker Cooperatives. A Fine Example is Mondragon Worker Cooperative Corporation in Spain. A Worker Co-Op is basically owned by all its workers and they base their decisions for the company on democratic voting. What to Produce and what to do with the Profits, they decide together. They have virtually solved the issues of Inequality through fixing the CEO-Employee ratio of income inequality reducing it to 8:1. The Workers together hire and Fire their Managers. There are Few Worker based Co-Ops throughout the world. They are also in the US. We Need More Awareness.
For More on the Worker Co-ops and their behavior during this Pandemic as compared to Capitalist corporation beholden to shareholders plz refer to the following news report by New York times:
For More on the History of Capitalism, Karl Marx, Worker Co-ops Plz refer to the Video below delivered in the Office of Google Inc by Eminent Economist Prof. Dr. Richard Wolff:
On Inflation its simple to explain its cause. The Cause is the Imbalance between the Principles of Supply and Demand in the Economy. Both these principles are Inversely proportional to each other. Meaning if the Supply increases the Demand Falls and vice Versa. Now if Central Bank Increases the Creation, Expansion & Supply of Money in the Economy without taking care of Proportional increase in the economy for Goods and Services, then inflation is guaranteed. For Without the increase in Demand for goods and services by Consumers, increasing the money supply will cause the prices to rise. This Expansion will always Debase and Devalue the Currency Causing Inflation. The Fractional Reserve system is inherently inflationary with only a fraction of Money 10% available for deposits in Bank. The Rest is essentially created out of thin Air and is not available in hard cash with the bank.
JazakAllah For your Time. 🙂
May 20, 2021 at 8:50 am
“Free market economy” is a term used to refer to the economic system based on supply and demand where individuals and entities are free to engage in trade with little to no coercion from the political system.
Of course governments do interfere in varying degrees, and wealthy individuals as well as organizations manipulate the markets to some extent, however, no systems made by humans are perfect. Moreover, this topic is about inflation, and not about the pros and cons of the free market economy.
In the future please keep your responses in line with the original topic.
May 20, 2021 at 9:47 am
First Sir, I apologize for Diverting away from the Topic. In future i will be careful inshAllah. 🙂 Plz Let me Clarify this Last time. 🙂
Sir in Capitalism, only those Individuals and entities, who have Wealth and Capital in the system are “free” to engage in trade. These Individuals and entities are relatively few because of accumulation of wealth at the Top by the Elite Class.
The Rest of Labor Class is slave to this system. It is essentially the Capital that controls the labor by controlling wages and livelihood of working Class. And the Capital is controlled by this 1% Elite.
However a large part of population, the middle working class and the poor class are virtually left out of the system, legally & by default, due to lack of access to wealth and Capital, unable to do any meaningful economic Activity. The Elite is “free” to use their wealth as a Privilage to oppress the middle and poor class & Squeeze the wealth out of their pockets into the Pockets of Elites for Profit. All in the Name of Free Market and Liberty. I’m Sorry This is not Liberty. Its Economic Slavery for the Majority. And Liberty for only a few tiny Minority To become More Rich at the expense of Poor.
The only difference between Slavery, Feudalism & Capitalism is that: the Few Major Share Holders in Capitalism Have replaced the Kings and the Masters in the Previous Systems. The Large Majority of Working Class has no place in devising a system that works for them in a democratic fashion and that which truly delivers freedom, justice & equality.
Humanity has evolved towards Democracy in the Politics. Its high time we also demand a Democratic workplace For the Masses. Without a Democratic Workplace, a true Political democratic representation will also be a dream as these Representatives will be beholden to Wealthy interests.
May 20, 2021 at 10:09 am
This has nothing to do with the original topic.
May 20, 2021 at 12:23 pm
I think information above is revealing, but getting back to the topic, I think that such issues as inflation being a tax or not comes to question when taxes are considered to be an offset for Zakat calculations. And it is not just inflation, but also other taxes such as sales tax etc.
I personally like simpler method of paying Zakat or call it minimum charity amount – that is calculating after taxes. Just 2.5% or more of my income after taxes and 2.5% on everything I own as charity when I die. Everything going strictly and directly to poor people who are struggling for food, clothing, medical and housing. For other religious institutions , we should pay additional charity.
I strongly feel that state taxes somehow got mixed up with charity or Zakat and somehow Zakat collection became state enforcement action. Charity and Zakat should be with intention and with will of a person, not forced; just as prayer, fasting, Hajj or personal belief in Allah.
May 20, 2021 at 12:37 pm
Unfortunately, religion is not based on our likes and dislikes – it is what it is and we must first follow it in letter and spirit, and then find any wisdom behind it’s injunctions.
Zakat is a worship ritual. The details of zakat can be found here:
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