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How to Pay Off Debt With Inflation

There are three ways for a government to pay for debt: issue new debt, collect taxes, and cause inflation. Inflation is a 'hidden tax' on a populace- it decreases the value of future money, and allows governments to pay off their current debt with devalued money. The United States dollar, as the world's reserve currency, gives the United States a unique temptation (opportunity?) to pay off their debts in a currency it can print. What exactly is inflation, though? And if you believe inflation is on the way, how do you set yourself up to counteract it?

Milton Friedman's Permanent Income Hypothesis

One of Milton Friedman’s most influential and revolutionary theories was his challenge to the traditional Keynesian consumption function, which includes simple after-tax income as a variable in the consumption. Friedman countered, however, that those who consume today take future taxes, price increases, salary increases, and other factors into account. This is summarized in his Permanent Income Hypothesis. More specifically, this counters that people consume based off of their overall estimation of future income as well as opposed to only the current after-tax income.

If You Don't Have One... Get One

If you saw $1,377.71 lying on the ground, would you pick it up? I hope you would. That's the sort of savings you could find from opening a Roth IRA. Any increase in your future tax rates means you made money simply from choosing the right account to invest in. Sound good? Read the article. Read More Carnivals, Week of June 22 Check out the 210th edition of the Carnival of Personal Finance. They are linking to the article "Eggs and Baskets". Find it under the category 'Bald Bull Does Bull Market Investing.' Carnival of the Capitalists features the article "The Minimum Wage Mistake." Check out this week's edition at the CotC site. Read More Carnivals, Week of June 15 My article "A Penny Saved is 1.76366843 Pennies Earned" was included in this week's Money Hacks Carnival! Head over to this week's carnival, hosted at Own the Dollar, and check out the 69th edition of the carnival. The article is located under the heading "Frugality & Saving Money -$10,000 Federal Reserve Note 1914".

If you come into money, don't ignore paying down debt as an option. Oftentimes paying down debt can save you much more money than you can earn with another option. Additionally, paying off a loan in full will increase your future cash flow. Read on for a look at debt as an investment and a closer look at tax-equivalent yield.

Hubris, Greed and Excess

"Bennet Sedacca announced to the world at 10:15 on the morning of March 5, 2008, that venerable Bear Sterns & Co., the nation's fifth-largest investment bank was in trouble, big trouble." The first paragraph opens with a bang. Ten days after Sedacca made that call, he was proven right. Bear Sterns was no more. William D. Cohan's House of Cards: A Tale of Hubris and Wretched Excess on Wall Street, explains how Bear Sterns got there.

Supply and Demand (And Other Economic Arguments Against the Minimum Wage)

Next month, the minimum wage in America is going to raise from $6.55 an hour to$7.25 an hour. The $6.55 to$7.25 jump is the last of the increases to the minimum wage under the Fair Minimum Wage Act of 2007. The minimum wage is a sexy law; politicians can stand hand in hand with the lowest income workers and say, "I'm fighting for you!". Unfortunately, the low income workers are holding the hands that hold them down.

The Drag of Taxes and Inflation: A Penny Saved is Worth More Than a Penny Earned

"A penny saved, is a penny earned," wrote Benjamin Franklin in Poor Richard's Almanack. The quote is repeated as fact by many people, often while picking pennies off the ground. Our friend Ben lived in a simpler time, and it's time to revisit this famous quote with a little (disgusting? intriguing?) math to see if it holds up to closer scrutiny.