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The federal government should fund everything through inflation

2 points by blintson ↗ HN
Funding everything through inflation gives every US dollar-using person in the world an incentive to get the feds to operate efficiently. Good idea? Bad idea? Think that government officials will just issue all the money they can, convert it into a foreign currency and run?

2 comments

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mschy
Bad idea.

Central bank independence is negatively correlated to inflation as well as variance of inflation. As such, a situation such as the United States has (with a fairly independent central bank) tends to be quite good both at reducing inflation, and at keeping the rate of inflation predictable

Further, central bank independence is also negatively correlated to average deficit as a proportion of GDP. Thus indicating that historically, the more power politicians have to overspend, the more likely they are to do it.

While I don't think the Federal Reserve system is perfect, I do think it's a vastly better system than one that essentially cedes control of the currency to whatever group happens to be governing at the moment.

voidmain
Very bad idea. For every person in the world who need not pay U.S. taxes -- which would be everyone in your system -- there is a simple way to avoid this "tax": not holding dollars. The value of the dollar would collapse instantly.

This strategy has, of course been tried before. A good example is Zimbabwe, which devalued its currency by a factor of about 10^25 (!!) in a few years.