The Tribune Democrat, Johnstown, PA

November 21, 2010

Americans’ wallets are about to take a hit

Zachary Hubbard

— There’s a long, dark winter ahead and I’m not talking about the extended weather outlook for the Alleghenies. I’m referring to the projected increases in consumer prices and taxes Americans can expect next year.

The folks on Capitol Hill are going to have their hands full trying to sort out the country’s financial mess in the midst of rising consumer prices and tax increases. Taxpayers can only bleed so much until they run dry. Then the pols will have to begin slashing federal budgets and cutting handouts and entitlement programs.

This won’t help them come election time, so many will try to resist. It’s an old political dilemma – do what’s right and get voted out of office.    

Unfortunately, living in America is about to get more expensive and there’s little our elected officials can do about it. At the top of the blame list is the Federal Reserve. The Wall Street Journal reported on Nov. 4 that the Fed is going to buy $600 billion in U.S. Treasury bonds. The Fed, in turn, will cause $600 billion in federal reserve notes to be printed for the government to inject into the economy.

The administration’s euphemism for this is “monetizing the debt.”

The government calls it a stimulus.

Smart people call it inflation. Every time the Fed writes the Treasury an IOU and then prints more money for the government to blow, your bank accounts and investments lose a proportional amount of value, reducing your spending power.

I spent 14 years in Germany, where the older generation understands out-of-control inflation. I recall 1972, as our landlord Frau Bauman described the days of her youth after World War I. Burdened with trying to repay massive war reparations imposed by the victorious Allied powers, Germany’s Weimar government was forced into a pattern of borrowing and printing money, resulting in hyperinflation. By the end of the crisis, billion-mark bank notes worth less than the paper they were printed on were being produced by the ton. The situation was in many ways similar to what we’re witnessing in America today.  

Bauman recalled inflation so severe that food prices in grocery stores were written on chalk boards and raised several times daily. She remembered her father purchasing a new car. He went to the dealer with a cardboard box full of money. When he paid, the dealer took the box, but never counted the bills inside.

Things here aren’t that bad yet, but the Fed is traveling a dangerous path.  

President Obama returned from the G20 summit in South Korea, where his vision for American economic policy received a chilly reception. Germany, China and Russia were particularly critical of Obama’s economic policies.

Not depressed yet? Let me remind you that Obamacare taxes are going to kick in beginning in 2011, even though benefits don’t start until 2014. The National Review Online published an article Nov. 5 titled “Critical Condition.” It describes 10 Obamacare tax increases. Not all begin in 2011 and not all apply to every citizen, but they will trickle down to consumers and create widespread pain nonetheless.

On top of this, Congress has yet to decide on extending the so-called Bush tax cuts, which expire Dec. 31.     

Small businesses will suffer in particular. As of Nov. 15, the U.S. Department of Health and Human Services website listed 111 companies and unions that have been granted Obamacare compliance waivers, a clear sign businesses are scrambling to control the anticipated damage from the new health-care mandates.  

On Nov. 9, the U.S. Department of Agriculture announced global cotton production for 2010-11 is expected to be down. This means you’re going to pay more to clothe your family next year. China, the world’s clothier, recently announced next year’s clothing prices will increase because it will be paying more for cotton.  

A global wheat shortage is also projected for 2011, due mainly to a prolonged drought in Russia. Russia recently announced that the poor harvest will necessitate significant reductions in its wheat exports. The results will be felt around the world, as prices for bread and other wheat products rise.

There’s more.

After what appeared to be a great crop, the Department of Agriculture announced in October that this year’s corn yields were below projections. The corn shortage is expected to cause a rise in meat prices, as corn is a prime ingredient in cattle feed. Corn syrup is also used in countless prepared foods.

Gasoline prices are also expected to rise in 2011. The shortage of corn, the key element in ethanol production, will push ethanol prices higher.

Ethanol is blended into most gasoline that is sold today. The still-undefined impact of the Gulf oil spill and the unpredictability of Arab oil suppliers both have the potential to force gas prices even higher.  

The cost of heating your home this winter is projected to increase as well.

The U.S. Energy Information Administration announced in October that it is projecting heating oil prices to increase by 8 percent, natural gas by 6 percent, propane by 11 percent and electricity by 2 percent.

As for electricity, those of us in western Pennsylvania can also expect an additional rise in the cost of electricity, up to 30 percent by some estimates, when deregulation takes effect in January.

Readers who are Social Security recipients and/or living on fixed incomes already know how much their cost of living increases will be in 2011 – zip, nada! How are folks going to get by? How can one plan for what’s coming? These are great questions to ask our elected officials.

You can try to plan for the worst, but as former heavyweight boxing champion Mike Tyson said, “Everyone has a plan until – until they get punched in the face.”  Get ready! Some heavy economic blows might be headed your way.

Fortunately for us local yokels, holed up at home clinging to our guns and religion, there’s some good news. The price of ammunition is down slightly and attending church is still free.  

Zachary Hubbard is a freelance writer residing in Upper Yoder Township. He is a member of the Tribune Democrat Reader Advisory Committee.