Dilution is fine, but so is export. Your usage of export isn’t right. Denmark can export little tins of butter cookies, but still have buttercookies for sale domestically because they didn’t export all of them. It’s almost never a binary all/nothing act, so not sure why you would object on the implication it did.
Understanding what you are trying to say is a bigger issue.
But it’s not difficult to understand.
If a government can make money out of nothing to pay for anything it needs to (the definition of fiat currency), then it doesn’t need to collect taxes to pay for things. If it doesn’t need to taxes to pay for things, then what do taxes do? Taxes remove money from the economy, offsetting the money added by government spending from nothing. This is direct inflation control.
This has a lot partially correct in here too, but you’re comitting similar mistakes. The logic is “unconventional”. Might be too much for a convo in a shitpost, but fuckit, you’re interesting, let’s find out. Breaking it down:
If a government can make money out of nothing to pay for anything it needs to (the definition of fiat currency), then it doesn’t need to collect taxes to pay for things.
Fiat currency being an infinitely creatable unit of account is, as you say, money out of nothing. Also, as you say, it can be used to pay for anything it needs. The part you’re missing is “with consequences.” If the number of dollars x velocity of money is roughly equal to the goods and services available in the economy, there is no inflation, even with its fiat nature. If the number of dollars x velocity increases or decreases via fiat mechanics, at the same rate as the total goods and services in the economy, there is no inflation. Econ 101 as you say.
Inflation comes when the number of dollars and/or velocity increase beyond the value of goods and services available in the market. In your statement you said governments don’t need taxes because they can manipulate fiat via quantitative easing to create the money they need to buy things. They can, but it will necessarily create undesirable inflation. Think about it, the economy is the same, the people’s use of dollars x velocity is the same, but government is adding more dollars. Its the very definition of inflation. When governments collect taxes to pay for things, they aren’t creating money, government spending is exactly balanced by reduced taxpayer spending and is not inflationary. Your statement is thus incorrect.
If it doesn’t need to taxes to pay for things, then what do taxes do? Taxes remove money from the economy, offsetting the money added by government spending from nothing. This is direct inflation control.
This feels muddy to my previous point. Gov does need taxes to offset public spending to avoid inflation. Its not taxes or public spending that that are used to actually control inflation. That role in normal times is served by government debt sold on world markets and most importantly the rates paid on it. In emergency situations when that is not enough, quantitative tightening or easing are used.
Going back to the previous definition based on a steady state economy, we can now add inflationary pressures from debt markets. In a global economy, debt is not directly inflationary because the debt buyers trade their claims on goods and services with the government who will spend their money, just like taxes. Oversimplifying a bit here, no “new” dollars are effectively being created in the system, just moved around from creditor to debtor. The interest paid on the debt, is potentially highly inflationary/deflationary. It isn’t straight forward either so for brevity, low rates make borrowing cheaper and can goose the economy by increasing production of goods and services. High rates can similarly restrict investment, slowing the rate goods and services are consumed and produced, slowing velocity.
Governments get into trouble with this because goosing or choking your economy with rates and deficit spending have consequences. If rates are too low, borrowing increases in non-productive, consumer oriented credit. Now the consumer borrowed from their future, but there is no increase in productivity to offset the payback with interest. Like a sugar rush that follows with a sugar crash, its a big headache.
Government have a similar function with deficit spending, but they can inflate their dollars away if borrow to much. They can always pay back their debt, with the caveat being that it is devalued dollars being paid back. The balance of Creditor sentiment and government power determine where rates land at any given time.
All this to say, your understanding of taxes, money supply and inflation doesn’t align enough with how the system really works.
99% of that is correct. That is exactly what governments do. You understand exactly what I’m saying also.
The one part that’s wrong is tiny, but absolutely foundational to what I’m saying,
What governments do, doesn’t necessarily correlate with how things work. What they do, and have done for centuries, could be wrong.
I’m arguing that it is wrong. I’m saying that everyone has been running their economies and making monetary policy decisions based on wrong ideas, since fiat currencies were invented.
From what I understand, you want no taxes and governments just quantitative eases their money supply into existence to fund everything? A Hyperinflationary scenario.
Yah… That’s econ 101 stuff I’m not and haven’t been confused about that. Not sure how that’s ‘exporting’ inflation.
I don’t understand what you’re trying to say.
I’m not sure you understand what I’m trying to say.
You:
Me:
I guess if you want to define the term that way, you can.
Seems an odd choice of phrase.
If you export something, you don’t have it domestically any more.
But this doesn’t work that way.
Diluting is a better term. But diluting isn’t exporting.
But still, that’s nothing to do with what I was saying.
Which is why I’m not sure you understood what I was saying.
Dilution is fine, but so is export. Your usage of export isn’t right. Denmark can export little tins of butter cookies, but still have buttercookies for sale domestically because they didn’t export all of them. It’s almost never a binary all/nothing act, so not sure why you would object on the implication it did.
Understanding what you are trying to say is a bigger issue.
This has a lot partially correct in here too, but you’re comitting similar mistakes. The logic is “unconventional”. Might be too much for a convo in a shitpost, but fuckit, you’re interesting, let’s find out. Breaking it down:
Fiat currency being an infinitely creatable unit of account is, as you say, money out of nothing. Also, as you say, it can be used to pay for anything it needs. The part you’re missing is “with consequences.” If the number of dollars x velocity of money is roughly equal to the goods and services available in the economy, there is no inflation, even with its fiat nature. If the number of dollars x velocity increases or decreases via fiat mechanics, at the same rate as the total goods and services in the economy, there is no inflation. Econ 101 as you say.
Inflation comes when the number of dollars and/or velocity increase beyond the value of goods and services available in the market. In your statement you said governments don’t need taxes because they can manipulate fiat via quantitative easing to create the money they need to buy things. They can, but it will necessarily create undesirable inflation. Think about it, the economy is the same, the people’s use of dollars x velocity is the same, but government is adding more dollars. Its the very definition of inflation. When governments collect taxes to pay for things, they aren’t creating money, government spending is exactly balanced by reduced taxpayer spending and is not inflationary. Your statement is thus incorrect.
This feels muddy to my previous point. Gov does need taxes to offset public spending to avoid inflation. Its not taxes or public spending that that are used to actually control inflation. That role in normal times is served by government debt sold on world markets and most importantly the rates paid on it. In emergency situations when that is not enough, quantitative tightening or easing are used.
Going back to the previous definition based on a steady state economy, we can now add inflationary pressures from debt markets. In a global economy, debt is not directly inflationary because the debt buyers trade their claims on goods and services with the government who will spend their money, just like taxes. Oversimplifying a bit here, no “new” dollars are effectively being created in the system, just moved around from creditor to debtor. The interest paid on the debt, is potentially highly inflationary/deflationary. It isn’t straight forward either so for brevity, low rates make borrowing cheaper and can goose the economy by increasing production of goods and services. High rates can similarly restrict investment, slowing the rate goods and services are consumed and produced, slowing velocity.
Governments get into trouble with this because goosing or choking your economy with rates and deficit spending have consequences. If rates are too low, borrowing increases in non-productive, consumer oriented credit. Now the consumer borrowed from their future, but there is no increase in productivity to offset the payback with interest. Like a sugar rush that follows with a sugar crash, its a big headache.
Government have a similar function with deficit spending, but they can inflate their dollars away if borrow to much. They can always pay back their debt, with the caveat being that it is devalued dollars being paid back. The balance of Creditor sentiment and government power determine where rates land at any given time.
All this to say, your understanding of taxes, money supply and inflation doesn’t align enough with how the system really works.
99% of that is correct. That is exactly what governments do. You understand exactly what I’m saying also.
The one part that’s wrong is tiny, but absolutely foundational to what I’m saying,
What governments do, doesn’t necessarily correlate with how things work. What they do, and have done for centuries, could be wrong.
I’m arguing that it is wrong. I’m saying that everyone has been running their economies and making monetary policy decisions based on wrong ideas, since fiat currencies were invented.
How should it work?
From what I understand, you want no taxes and governments just quantitative eases their money supply into existence to fund everything? A Hyperinflationary scenario.