Some Simple Rules of Economics

It seems few people have any economic sense these days, so I thought I would tell you a few rules I have learned in my lifetime. They probably are things you never thought about.

1) The total amount of money in circulation is the exact amount needed to buy all the goods and services available. This is important to know because the Federal Reserve Bank (Fed) has the ability to increase the amount of money in circulation. If they increase the money supply by 10%, expect prices to go up by 10%.

2) Businesses do not pay any taxes. They merely collect taxes for the government. Any tax a business pays is a business expense, and must be passed along to the consumer or the business will go under. The consumer pays all the taxes in an economy. The effect of this is to hide a large portion of the tax burden the consumer pays. Now, knowing this, what would be the effect of the Federal Government increasing the taxes on the oil companies?

3) Ok, most everyone knows this one, its call the law of supply and demand. When the demand for something goes up, without an increase in supply, the price of that item will increase. Conversely, if the supply goes up with the same demand, the price will drop.

4) Fiat currency (the American Dollar) is actually an IOU. When you pay for something at Wally World, the debt is not yet paid. It is not paid until the other party trades the fiat currency for something real, like a screwdriver or pound of pork. This means that our huge trade deficit is a debt we must pay at sometime in the future with our real wealth, like our factories, our real estate, or our gold reserves. Can you speak Mandarin?

I believe if people understood these 4 rules, our politicians would have to be more honest with our budgets. Maybe thats the reason we are not taught these simple ideas in school.

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