The $700 billion bailout is dead in the water. For now. Does this save working American’s tax dollars? Not according to Taipan Daily editor Justice Litle. In the absence of a bailout passing into law, Bernanke & Co will simply crank up the printing press and try to inflate the problem away. This is taxation by another means. It just doesn’t feel like it.

As we’ve talked about in these pages before, Fed Chairman Ben Bernanke is a devoted student of the Great Depression. You could almost say that a study of the Great Depression - its causes, its quirks, and finding the means to ensure it never happens again - makes up the sum total of Bernanke’s lifework.

In 2002, Bernanke gave a speech titled, “Deflation: Making Sure ‘It’ Doesn’t Happen Here.” (You can read the full text here.)

This is where the, uh, taxing part comes in (underscore emphasis mine):

Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

Do you know what gentle Ben is really saying here? He is saying he can tax the dollars right out of your wallet if he chooses to. And if he has to, he will… and there isn’t a thing you or I can do about it (other than convert those dollars into something else before they get devalued).

Simply put, inflation is a form of hidden tax. Whenever the U.S. government prints dollars from thin air, it lessens the value of the dollars in your bank account.

This is no different than taking money from your bank account… except the process is much more stealthy. When the government practices taxation by inflation, many of us don’t even know we’ve been taxed. The value has been drained from the dollars, even if the dollars are still there.

If you’re still fuzzy on the concept of inflation as a hidden tax, ask yourself this: Why does the government bother with collecting taxes at all? In theory, Uncle Sam could just print up dollars for everything he needs.

If there were, say, $10 trillion in circulation, the government could just print up $10 trillion more for itself…. dropping the value of all existing dollars by 50%, but hey, so what.

If we did it this way, there wouldn’t have to be an IRS. We could abolish April 15th, stop worrying about tax lawyers… When Uncle Sam needs something, he just writes himself a check. So why not do it?

There are at least two reasons why direct “taxation by inflation” - a system where the government prints what it needs - does not happen.

For one, lobbyists and their masters love a complicated tax code. It allows them to exploit loopholes and siphon dough from the system in all kinds of ways.

But, more importantly, taxation via printing press would be too obvious. If we did it that way, most everyone would understand the concept of inflation as a hidden tax. There would be no room left for stealth. A lot more people would pay a lot more attention to those printing presses chugging away in the dead of night.

And that’s really one of the ironies of this whole bailout mess.

Now that the Fed and Treasury have been rebuffed in their efforts to go through the front door, they’re just going to concentrate even harder on saving the system via the back door… and that means big-time taxation without representation (i.e., taxation via the printing press).

No Votes on This One

There won’t be any votes on this. The printing has already begun, as The New York Times spelled out on Monday:

Without the broad bailout plan they invented and lobbied hard for, the two agencies are once again forced to careen from one desperate path to another, and to dig deep into their toolkits to rescue the global financial system. Even before the House stunned the world on Monday by rejecting the Bush administration’s bailout bill, the Fed was already resorting to the oldest action in its book: printing money.

In the past two weeks alone, the Fed has borrowed and lent a whopping $710 billion - more than the cost of the proposed bailout - in an effort to keep the system afloat. Some of that went to an “emergency lending program” for various banks; some of it went to “swap lines” with foreign central banks to help shore up European and Asian money markets; and some of it went to flailing institutions like AIG.

And the ironic thing is, the Fed is just getting started. If a follow-up bailout plan doesn’t pass - and many of those chanting “No! No!” are hoping it won’t - then Bernanke will just gear up the printing presses to an even further degree.

Source: Get Ready for Taxation Without Representation