Why can't we just print money... ?

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Griffin
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Why can't we just print money... ?

Postby Griffin » Thu Nov 06, 2008 8:08 am UTC

Bear with me for a second, and someone explain to me why the following system wouldn't be workable. I assume it wouldn't be workable, simply because if it was I don't understand why it hasn't been done.

First point:
There are no taxes. Period. At all.

Second point:
The government is allowed to print a certain amount of new money each year without removing old money from circulation. This should of course be released in a staggered manner, and would be - through government paying for employees and services.
Much like taxes, this level can be changed through legislation.

If neccesary, every so many years, the smallest unit of currency will be phased out. Preferably there should be a new name for every hundred or thousand units of money as well. Like we would have penny, dollar, megabuck, G, whatever.

Third point:
This money printing amounts to a "wealth tax" which is pretty much the most progressive tax you can get, with the least overhead costs.

Basically, controlled inflation to pay for government expenditures.

So... why wouldn't this work?
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Re: Why can't we just print money... ?

Postby qinwamascot » Thu Nov 06, 2008 8:16 am UTC

It leads to rampant hyperinflation. To look at a historical example, Germany in the 20s had to pay reparations amounting to 4 times their national GDP, so they did this. In 1923 the inflation rate hit 3.25 million percent, meaning prices doubled each day. Not a good situation.

edit: i misread your post. I thought you wanted to print money so the government would have more.

In this case, it's quite difficult to control the inflation. Plus, inflation forces everyone to work. The government wouldn't have any money for welfare either. And if we keep minimum wage laws, this leads to labor surpluses, or unemployment. So it really doesn't help the poor like you'd want.
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Re: Why can't we just print money... ?

Postby Mzyxptlk » Thu Nov 06, 2008 9:43 am UTC

qinwamascot wrote:1923 the inflation rate hit 3.25 million percent, meaning prices doubled each day.

That is not actually true. 2^365 = lots.
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Re: Why can't we just print money... ?

Postby Grop » Thu Nov 06, 2008 10:29 am UTC

Hi Griffin, do you doubt this would cause more inflation than current systems? Or do you think more inflation is ok so long as it is "controlled" (like, let's multiply every price by ten - no more, no less - on every year)?

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Re: Why can't we just print money... ?

Postby EmptySet » Thu Nov 06, 2008 10:43 am UTC

It would also screw up investment. If I've got money, I want to put it somewhere where it will gain value, not lose it - under this scheme, that means another country. Unless interest rates are incredibly high, which would probably cause problems with loans - either people not being able to take them or banks not being willing to give them out - which would lead to loss of business and thus jobs. Also, nobody would want to buy a currency which was constantly being devalued, which also forces inflation up.

So, yeah... it would probably lead to huge inflation, loss of investment in the country, high unemployment, etc. etc. It might be theoretically possible to control it, but I think that in reality it would be extremely fragile - as soon as the balance was disturbed at all, you'd end up with loaves of bread costing forty billion dollars each.

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Re: Why can't we just print money... ?

Postby TheStranger » Thu Nov 06, 2008 11:46 am UTC

The gov would have to print a huge amount of money to cover it's yearly operating expenses!

Which brings up an interesting question. How many actual dollars are there vs. dollars that exist in economic space? I'd be very surprised if the number of greenback approached the number of virtual dollars that existed (in bank accounts, bonds, and such).
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Re: Why can't we just print money... ?

Postby Marquee Moon » Thu Nov 06, 2008 12:54 pm UTC

TheStranger wrote:Which brings up an interesting question. How many actual dollars are there vs. dollars that exist in economic space? I'd be very surprised if the number of greenback approached the number of virtual dollars that existed (in bank accounts, bonds, and such).


http://en.wikipedia.org/wiki/Image:Components_of_the_United_States_money_supply2.svg

Looks like paper money accounts for about 3% of total money supply.

And inflation=bad as everyone else said.

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Re: Why can't we just print money... ?

Postby mosc » Thu Nov 06, 2008 3:06 pm UTC

You can't tax holdings with inflation, that's utterly absurd. Holdings are held in accounts that GAIN money. If nothing else, the federal debt (T-bills) can out-pace inflation. You want inflation higher than T-bill interest rate? Nobody will borrow from the government. The government cannot function AT ALL without investors willing to buy up it's debt. You will destroy the greatest economy the world has ever seen in mere months.

tax income, tax gains. Just do it progressively. Sheesh, it's not rocket science. Quit trying to be backhanded about what you want to actually accomplish.
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Re: Why can't we just print money... ?

Postby Okita » Thu Nov 06, 2008 3:11 pm UTC

Not to mention that the Fed has enough issues trying to juggle inflation with all the other things it juggles to attempt to use such a mechanism that would require surgeon like fine-tuning.
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Re: Why can't we just print money... ?

Postby mosc » Thu Nov 06, 2008 3:52 pm UTC

It should be pointed out that we print hundreds of billions of dollars every year (maybe trillions now?) which brings in income (costs pennies on the dollar to MAKE money). It for the most part is a means to help with deflation, not inflation. We could print enough to inflate sure, but we have to print A LOT just to stop from deflating it's worth.
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Re: Why can't we just print money... ?

Postby Vox Imperatoris » Thu Nov 06, 2008 5:33 pm UTC

Capitalism is based on the idea that if you invest money in a profitable business idea, then it will make money. If you construct this system in such a way that wealth is destroyed (not "taxed", by the way) by inflation, then you have removed all incentive to save money and invest. It's like Communism, but without the welfare and equality.
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Re: Why can't we just print money... ?

Postby qinwamascot » Thu Nov 06, 2008 6:16 pm UTC

Mzyxptlk wrote:
qinwamascot wrote:1923 the inflation rate hit 3.25 million percent, meaning prices doubled each day.

That is not actually true. 2^365 = lots.


Sorry, I mistyped. I meant every 2 days. That inflation rate was per month as well. Entirely my fault.
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Re: Why can't we just print money... ?

Postby Vaniver » Thu Nov 06, 2008 7:54 pm UTC

Vox Imperatoris wrote:If you construct this system in such a way that wealth is destroyed (not "taxed", by the way) by inflation, then you have removed all incentive to save money and invest.
It actually does function like a tax, because everyone other than the government loses wealth, and the government gains wealth. If the rate of inflation is unknown, it's the risk involved which does the wealth-destroying (since people now have to protect themselves against risk, instead of just dealing with decaying dollars).
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Re: Why can't we just print money... ?

Postby folkhero » Thu Nov 06, 2008 8:02 pm UTC

The entire banking system would be destroyed almost instantly. Inverters would pull all their money out in order to try to buy up commodities (or foreign moneys) that will have some lasting value. No one will want to buy the banks' loans because by the time they get paid off the money will be worthless. The government will have to force, at the point of a gun, business to accept money that they don't want. Foreign countries won't accept US currency, we will have to trade away commodities and other things of value when dealing with foreign businesses. No one will lend money to the U.S. government, because by the time they get it paid back it will be worthless, unless the U.S. offers a huge interest rate, which will only drive inflation even higher.
Basically imagine the biggest economic collapse you can image, then no one wanting American dollars, and then the government forcing you to take American dollars. But I suppose it would succeed in your goal of sticking it to the rich people.
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Re: Why can't we just print money... ?

Postby Griffin » Thu Nov 06, 2008 8:27 pm UTC

Okay, uhm, I'm not saying the government should have unlimited ability to print money (like most historical examples) because obviously uncontrolled inflation is crap. But yes, the money would be used to pay for government services - that's the whole point of using it as a indirect tax system.

Or do you think more inflation is ok so long as it is "controlled" (like, let's multiply every price by ten - no more, no less - on every year)?


That's pretty much what I'm asking - I'm not proposing this system so much as figuring out WHY it wouldn't work. I'm not entirely sure why inflation is inherently bad, except for when it makes the market unpredictable.

It would also screw up investment. If I've got money, I want to put it somewhere where it will gain value, not lose it - under this scheme, that means another country.


Well, I don't actually see why that would be the case. At all. If you invest it here, you WILL gain money. Because those businesses you invest it in would be MAKING more money every term, as well. Numerically, money would have decreasing value - but businesses you invest in would not. As long as the inflation was stable, I don't understand why any of your predictions would come to pass.

You can't tax holdings with inflation, that's utterly absurd. Holdings are held in accounts that GAIN money. If nothing else, the federal debt (T-bills) can out-pace inflation. You want inflation higher than T-bill interest rate? Nobody will borrow from the government. The government cannot function AT ALL without investors willing to buy up it's debt. You will destroy the greatest economy the world has ever seen in mere months.

tax income, tax gains. Just do it progressively. Sheesh, it's not rocket science. Quit trying to be backhanded about what you want to actually accomplish.


Uh, what exactly are you talking about here? Holdings gains money but wouldn't here... why? They aren't just sitting on the money and watching it magically grow - they're spending it in an attempt to make more.

And obviously such a system would have higher interest rates - for everything. Thats obvious. And how am I being "backhanded about what I want to accomplish"?

Capitalism is based on the idea that if you invest money in a profitable business idea, then it will make money. If you construct this system in such a way that wealth is destroyed (not "taxed", by the way) by inflation, then you have removed all incentive to save money and invest.


HOW!? That is what I'm asking - how does this "destroy wealth"?

Investments in business should still make money, and more importantly increase in value. Saving money, maybe, if by which you mean "keeping it under the mattress", but if anything this is a HUGE incentive to invest - if your money isn't doing anything, it will decrease in value.

In this case, it's quite difficult to control the inflation.

So the only real argument I've seen here that isn't loudly asserting things is that it would be difficult for the government to control the inflation due to historical precedent. However, I'm pretty sure a sustainable inflation has never actually been tried, so I don't know how difficult it would be more - more difficult than our failed attempts to control inflation right now? Maybe. But how much more?

Plus, inflation forces everyone to work.

And this is the biggest reason why I think a system like this is GOOD. Income tax, gains tax - they discourage productivity. They punish you for working more. They punish you for adding value to the system. This system would encourage productivity.

The entire banking system would be destroyed almost instantly. Inverters would pull all their money out in order to try to buy up commodities (or foreign moneys) that will have some lasting value. No one will want to buy the banks' loans because by the time they get paid off the money will be worthless.


Or, you know, banks could charge a higher interest rate to account for the inflation. Sort of like they already do. In fact, thats the answer to every single one of your problems. The inflation caused by government is a known. It is a set amount. A percentage, perhaps, but it's known. That is simply taken into account when dealing with loans, and then what exactly is the problem? As long as the interest on the loan is greater than the inflation rate, you will make money - EXACTLY THE SAME WAY IT IS TODAY.

EDITED TO ADD:
In addition, stop assuming this is the United States (for those who are doing so). Treat it as some hypothetical new country with a decent sized population base that's going to be this way from the get go. Just for the purposes of argument that aren't based around "It's so different from what we have now people would panic because people are stupid so the system would fail irregardless of whether or not the system is actually workable."
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Re: Why can't we just print money... ?

Postby mosc » Thu Nov 06, 2008 9:34 pm UTC

Griffin, You simply need to learn more about how this works. Please stop trying to jump to a solution when you don't have the foggiest clue how the system works. If you can't understand why inflation is controlled today, you shouldn't propose drastically increasing inflation.

The US Federal Reserve controls interest rates not just for the US, but for every bank in the world. It is the foundation of this little thing we call capitalism. Not to get all "US centric" on you but this is essentially because buying up US dept is considered the safest investment on the face of the earth. Thus, the rate of interest at which EVERY other bit of dept on the GLOBE is at must be higher than the federal reserve rate. Now this fact alone should stress the importance of controlled inflation. The entire world economy literally hinges on that one rate. It takes Trillions of dollars of buying power to control. Note I said Dollars, not Euros. Inflation in dollars is the most significant on the globe as well.

It's been said you can see the relative anxiety in the world financial market by measuring the bank to bank interest rates vs the federal reserve rate. When things are good, the bank to bank rates will be only slightly higher... only slightly less safe than buying US federal dept. When things are bad (like now) the interest rates banks charge each other will be much higher than the federal rate. This means they don't want to lend each other money. It is a direct reflection of exactly how willing they are to send each other money. The federal reserve interest rate is the benchmark this is measured against. If you want to know how the German banks are doing or how the Chinese banks are doing or even what they think of each other, you use the US federal reserve rate as a subtractor and then compare the interest rates.

There are of course a million and one factors in inflation and foreign interest rates and everything else but the single largest factor is the US federal reserve rate. A basic understanding of that is essential before you start trying to change anything in the system don't you think?
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Re: Why can't we just print money... ?

Postby frezik » Thu Nov 06, 2008 9:59 pm UTC

Griffin wrote:
Or do you think more inflation is ok so long as it is "controlled" (like, let's multiply every price by ten - no more, no less - on every year)?


That's pretty much what I'm asking - I'm not proposing this system so much as figuring out WHY it wouldn't work. I'm not entirely sure why inflation is inherently bad . . .


Small, controlled inflation isn't bad, and is actually a sign of a healthy economy. Deflation is bad (google "wages are sticky"). Hyperinflation is bad. This proposal would cause hyperinflation.

. . . except for when it makes the market unpredictable.


That's a very big exception. Any time the government has an emergency spending bill for some unforseen event, it'll have to print more money to cover the cost, which drives up inflation. If you invested expecting 1000% inflation based on the federal budget, but emergency spending suddenly brings it up to 1250%, you've effectively lost money.

Hurricane Katrina didn't come anywhere close to bankrupting the US, but it could happen under this system.
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Re: Why can't we just print money... ?

Postby mosc » Thu Nov 06, 2008 10:04 pm UTC

Yes, the higher inflation gets, the less governments can actually borrow. This happens in economies all over the world and is a serious problem. It doesn't happen in the US because of strict controls (Federal Reserve), a friggin massive tax base, and the dominant position as the world's safest bank.
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Re: Why can't we just print money... ?

Postby Griffin » Thu Nov 06, 2008 11:48 pm UTC

Mosc Said: Stuff


Yeah, sure, whatever, except I'm not proposing changing any system or the US's system or any of that. Nothing I said has anything to do with the damn federal reserve. Believe it or not, we had an economy before the US federal reserve, and I don't see why the fact that it exists NOW and is important NOW means no other system could possibly ever work.

I've got the point that changing from our current system to anything else would be horribly disastrous because we don't want to scare anyone. Now I'm asking what if this system was impemented from the get go?

Any time the government has an emergency spending bill for some unforseen event...

The government could do what it does now, and borrow money. As long as the interest rate they offer is higher than the inflation rate (and there's no reason it should be, since they're going to have a decent idea what the inflation rate IS since they are the major source of it) I don't see why people wouldn't lend it to them. In an economy where dollars are constantly devalued, giving your money to the government seems like a pretty safe bet if they promise your total value, rather than amount of dollars, will be maintained.
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Re: Why can't we just print money... ?

Postby Vox Imperatoris » Fri Nov 07, 2008 1:38 am UTC

Griffin wrote:HOW!? That is what I'm asking - how does this "destroy wealth"?

Investments in business should still make money, and more importantly increase in value. Saving money, maybe, if by which you mean "keeping it under the mattress", but if anything this is a HUGE incentive to invest - if your money isn't doing anything, it will decrease in value.

Because markets (and certainly not all markets at the same time) do not grow as fast as inflation would, the increased wealth from your investments would mean less and less as the rate of inflation surpasses the rate of your gains on the investment. Let's say you have $100 in widgets. If you get a 7% return on that, you now have $107; however, if inflation is 10%, each dollar is now worth less, and you have less money than you started with, a pretty bad deal. Cue a massive switchover to the Euro as people lose confidence in the Dollar, and you now have hyperinflation, since no one trusts that the U.S. Dollar will gain them money over time.

Oh, and if we got rid of the Fed and still kept fiat currency, we'd be screwed. There would be absolutely no way to control inflation; no one would trust that a dollar is worth more than the paper it's printed on. Think about it: why do you accept some strange green pieces of paper as payment for hard work? You accept it because you have confidence that that piece of paper will buy you food today, food tomorrow, and food next week. Abolishing the Fed might be okay if you switched to specie currency (since it always has value), like gold, but then you wouldn't have that controlled inflation you want.

(And I do think that this system would destroy wealth, since this system only creates extra money for the government, not tangible products that people value.)
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Re: Why can't we just print money... ?

Postby Kardos » Fri Nov 07, 2008 1:54 am UTC

For an economy that runs primarily on a credit system that entails monetary investments in money and credit, printing money in favor of taxes would result in uncontrollable inflation or even deflation as people seek a stabler source of wealth. However, the idea is not without merit in an economy that secures wealth through securing, and investing, in physical capital. This would essentially eliminate investments in currency's, any monetary reserves or bonds and etc due to induced inflation. On the flip side, if you are invested on the futures market in 30 contracts of iron, that iron is going to be relatively worth the same (with variance due to supply and demand) weather or not this years lowest value mint is a $100.00 bill or a $1,000,000,00 bill. There are 3 notable issues with such a system however.
1) How to, and who, controls the conversion rates from physical wealth (commodity investment) to credit wealth (currency).
2) Since the most stable means of investment would be commodities (instead of federal reserves) would the economy revert to a barter economy. If such were to happen, would the government issued currency become nothing more then a form of promissory note, essentially useless as a 'trades' good.
3) Under such a system, what would prevent private sectors, especially powerful corporations, from printing their own currencies and subverting governments by giving their own currency 'greater' value when used in relation to goods sold by said corporation. If such were to happen, would corporations employing such practices become themselves small independent governments, or even interdependent governments, and would this see the rise of city-states again after the dominance of nationals since the 1500's.

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Re: Why can't we just print money... ?

Postby SJ Zero » Fri Nov 07, 2008 3:11 am UTC

Some things:

1. Under this system, you could never retire. Your savings would continually wilt at high rates. Further, even if you managed to retire, you wouldn't be able to live on a fixed income because highh inflation would render your once impressive pension tiny.

2. Under this system, the government could not enforce welfare or minimum wage. The former for the same reason as pensioners -- the government would have to print more and more money every month for each welfare recipient to maintain the same quality of life. Minimum living wage would increase every month because inflation would increase the cost of buying the minimal essentials.

3. Under this system. labour would constantly battle with capitalists. With massive inflation, all employers would need to give massive pay increases to employees every single month to make up for the reduced value of their paycheques.

All in all, it'd be a boondoggle.

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Re: Why can't we just print money... ?

Postby logomachy » Fri Nov 07, 2008 4:19 am UTC

Griffin wrote:Bear with me for a second, and someone explain to me why the following system wouldn't be workable. I assume it wouldn't be workable, simply because if it was I don't understand why it hasn't been done.


Short answer? It is very much more work for everyone involved.

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Re: Why can't we just print money... ?

Postby Calorus » Fri Nov 07, 2008 8:16 am UTC

I'm mystified by the responses on here:

That is exactly what happens, except that the Government pays a private company called the Federal Reserve Bank to issue the new bills and pays interest on the money issued, as well.

The taxes you pay are then in addition to the money created.

The money created, plus the interest (paid for with more created money) plus the money in circulation then divided by the money that was there before is what defines inflation.

(current_money + new_money + (new_money x interest(APR)))/current_money = inflation

Ask yourself this question: "Where did the United States find $569,000,000,000 to wage war in Iraq and then $700,000,000,000 to save their ailing banks (many of which are thought to be part of the Cartel who own the Federal Reserve Bank)?"

The key to that is that those two massive, un-budgeted outgoings total just under 10% of your GDP (PPP).

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Re: Why can't we just print money... ?

Postby Grop » Fri Nov 07, 2008 9:45 am UTC

Carolus, Griffin's idea is to create *more* money, in order to need no tax.

Griffin, if a currency has a high inflation, people won't use it, no matter if it is predictibly high. Everyone who wants to save money will use a serious, foreign currency that keeps most of its value (and may well be used for investments later). This is not panicking, but rational, individual behavior.

(Concerning investments, I think most people save money for a while before investing).

I suspect importing stuff would become harder too, as foreign traders may prefer currencies that don't lose value quickly.

Even without the inconvenients of inflation, no taxes may raise a few questions:

What about local taxes? Where are cities supposed to find money? Does the central (or federal) state have to make a distribution?

Would alcohol, weapons, food and general goods be equally not taxed? That may matter a big deal on their relative prices.

How will people rant: This is what we pay taxes for? ;)

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Re: Why can't we just print money... ?

Postby Griffin » Fri Nov 07, 2008 10:21 am UTC

Okay, now I've gotten a few good reasons. Thank you, Kardos and Grop. Still, I feel a lot of people are missing the point.

For example, SjZero, I don't think you actually understand how the system would work - all of your answers were along the lines of "if you changed over from our current system to this right now, this would happen."

As to pensions, etc. - the obviously solution would be to not have pensions set in dollar amounts. Or to have it set in a steadily increasing amount of dollar amounts to match the inflation.

Savings would not dwindle, because it would be much easier for banks to pay higher interest rates on savings. If anything, it would be about what we have now (barring other factors).

3) Under such a system, what would prevent private sectors, especially powerful corporations, from printing their own currencies and subverting governments by giving their own currency 'greater' value when used in relation to goods sold by said corporation. If such were to happen, would corporations employing such practices become themselves small independent governments, or even interdependent governments, and would this see the rise of city-states again after the dominance of nationals since the 1500's.

What's to stop this from happening now? Also, this happens now.

Still, I've been convinced it would be a bad idea.
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Re: Why can't we just print money... ?

Postby Calorus » Fri Nov 07, 2008 10:23 am UTC

Grop wrote:Calorus, Griffin's idea is to create *more* money, in order to need no tax.

Griffin, if a currency has a high inflation, people won't use it, no matter if it is predictably high. Everyone who wants to save money will use a serious, foreign currency that keeps most of its value (and may well be used for investments later). This is not panicking, but rational, individual behaviour.

(Concerning investments, I think most people save money for a while before investing).

I suspect importing stuff would become harder too, as foreign traders may prefer currencies that don't lose value quickly.

Even without the inconvenience of inflation, no taxes may raise a few questions:

What about local taxes? Where are cities supposed to find money? Does the central (or federal) state have to make a distribution?

Would alcohol, weapons, food and general goods be equally not taxed? That may matter a big deal on their relative prices.

How will people rant: This is what we pay taxes for? ;)


No, I understand that, but the key is the 10% of GDP figure. Without the war, and the bank rescue, that $1.3 Trillion would have eclipsed Federal Government Spending. And, more importantly, without the interest paid in dividends to the Federal Reserve Bank's Private Shareholders (an unknown* Cartel) on all money created (i.e. If the Government simply created the money itself, as your constitution permits it to do). There would be by definition no national debt and once again, no interest payments.

As I understand it, this should really be an argument specifically targeted at the Federal Income Tax. I think Fuel Duty, Tobacco Duty, Alcohol Duty and a few other specific taxes which target the costs of maintenance of services required by people who make specific choices are perfectly valid, as long as they are used to maintain the services of their payors, (i.e. roads, hospitals, etcetera) however from this theoretical $1.3 trillion pot which the US has commissioned + the money saved on the IRS, the interest paid on debts, and the dividends paid to the shareholders of the Federal Reserve Bank recently you could quite easily distribute sufficient funds to individual states to cover education, sanitation and policing.

The $1.3 Trillion is more than the income tax contribution, and since $243 billion interest on debt would not exist you'd have a fair amount more to play with.

* The owners of the Federal Reserve Bank are completely unknown to the public, unpublished and unaccountable. They have complete responsibility for the creation of money, real or digital, and for the production of bank notes. The cartel is however perfectly well-known and accepted.

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Re: Why can't we just print money... ?

Postby Malice » Fri Nov 07, 2008 10:43 am UTC

Griffin wrote:Third point:
This money printing amounts to a "wealth tax" which is pretty much the most progressive tax you can get, with the least overhead costs.

Basically, controlled inflation to pay for government expenditures.

So... why wouldn't this work?


Because normal taxes apply once, whether that's out of your paycheck or at the cash register. This plan would devalue money continually, over and over again.
In other words, it is a constant wealth tax. But wealth taxes are bad.
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Re: Why can't we just print money... ?

Postby Calorus » Fri Nov 07, 2008 11:08 am UTC

Malice wrote:
Griffin wrote:Third point:
This money printing amounts to a "wealth tax" which is pretty much the most progressive tax you can get, with the least overhead costs.

Basically, controlled inflation to pay for government expenditures.

So... why wouldn't this work?


Because normal taxes apply once, whether that's out of your paycheck or at the cash register. This plan would devalue money continually, over and over again.
In other words, it is a constant wealth tax. But wealth taxes are bad.


That's the same situation as is: You will make far less in interest than you lose in inflation today, simply because the money you have is barely over subsistence. The vast majority of your funds (assuming you are not a member of the top 10%) will be your fluid operating capital, i.e. you'll be paid, spend most or all of it, and then be paid again. As a result, most banks will at best pay you on the average balance you had in your account over that period.

For the wealthy it's a different game. Even at the point of having £2,000,000 in assets, you can quite comfortably leave the vast majority of it in place either as a self-maintained stock portfolio, or non-current bank account - i.e. Fund/Bank Managed portfolio. In which case, if you've gotten your sums right, you'll at least track inflation, and still have a small dividend to live on, re-invest, or supplement your (presumable relatively large) income.

I'd like to cite your bank statement as an example, which (law of averages willing) will show an annual interest of not more than $50 after Bank Charges.

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Re: Why can't we just print money... ?

Postby Malice » Fri Nov 07, 2008 1:07 pm UTC

Calorus wrote:That's the same situation as is: You will make far less in interest than you lose in inflation today, simply because the money you have is barely over subsistence. The vast majority of your funds (assuming you are not a member of the top 10%) will be your fluid operating capital, i.e. you'll be paid, spend most or all of it, and then be paid again. As a result, most banks will at best pay you on the average balance you had in your account over that period.

I'd like to cite your bank statement as an example, which (law of averages willing) will show an annual interest of not more than $50 after Bank Charges.


Of course it would; I'm an impoverished college student. But the point is that inflation is low enough that my money will basically keep for reasonable periods of time. Under the proposed system, my wealth would be destroyed at a much faster pace so that the government could benefit. Both the intent and the results are different. Under the proposed system, there would be no point in saving anything; you'd spend everything you had as soon as you got it. Luxury items would essentially be out of reach of anybody who couldn't pay for them out of pocket. Like houses. Or cars. Hyperinflation's a nasty thing. Not progressive at all.
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Re: Why can't we just print money... ?

Postby SJ Zero » Fri Nov 07, 2008 8:33 pm UTC

Griffin wrote:For example, SjZero, I don't think you actually understand how the system would work - all of your answers were along the lines of "if you changed over from our current system to this right now, this would happen."


So explain to me where I'm misunderstanding.

Because all I did was take the existing consequences of the US Government's current policies which use inflation as a tax, and extrapolated it to if the inflation were made even worse and taxes eliminated.

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Re: Why can't we just print money... ?

Postby mosc » Fri Nov 07, 2008 8:56 pm UTC

Let me try a more macro level analogy.

Money is the fluid that lubricates the machine of capitalism. How well it flows from one place to another is how well the system is able to work. If money is tight, it's hard to get investment dollars to the entrepreneurs who need it and this stunts growth. Inflation, simply put, is the description of liquidity in the world markets. High inflation means things are tight. It means there are not enough lenders and too many borrowers.

Griffin, essentially what you are proposing is not necessarily a taxation strategy, but instead more of a commodity based currency. Wealth is effectively a commodity, not a financial amount. Inflation is the increase in value of commodities in currency. If the currency is not stable, the commodity prices become more and more significant.
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Re: Why can't we just print money... ?

Postby qinwamascot » Fri Nov 07, 2008 9:24 pm UTC

I'll use an example to illustrate why this is not a good policy.

Let's say that, for convenience, the inflation rate would be 20% annually. That's similar to the current taxation rate. So the government would get about the same amount of money. I'm not saying they're the same, just on the same order of magnitude.

I'm a middle-class person, who has a reasonable amount of wealth. I can keep that wealth as cash money, or I can buy things with it. In the case of 20% inflation, what do you think I'll do? Holding onto money is an idiotic proposition, so I'll buy something instead. I might even buy other currencies that don't suffer such a large inflation rate.

So people will constantly get rid of their money. They don't want it because inflation is too high. But there's a surplus of money, and it gets spent extremely fast as well. The thing is, we haven't increased real outputs by any, so our prices will accelerate faster than the 20% inflation. The inflation rate will grow over time exponentially. It's impossible to control.

The reason this isn't a problem now is that the market naturally corrects for small inflation, and the fed can deal with larger inflation by buying or selling bonds. But these only work for inflation up to maybe 20%. As stated before, we'll have more than 20% inflation. Ergo no easy solution.

What's worse is that if people stop wanting US currency, some other form of money could arise. Should this happen, the fed would have no ability to control anything. Or we could regress into a trading economy, which is obviously bad.

Malice wrote:But wealth taxes are bad.


I disagree with this in general, but agree that an inflationary wealth tax as our sole method of taxing is a bad idea.
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Re: Why can't we just print money... ?

Postby frr » Sat Nov 08, 2008 1:48 am UTC

Here is a different approach that might help you see why it doesn't work:

The main problem is to assume the lack of taxes and high inflation would cancel each other out so that the exact rate wouldn't matter as long as it resembled what we call taxes in some way (probably need a rather complicated equation for this, but I think this could be done).
This way, inflation would not be bad anymore, right? Since we know that this inflation is just a kind of investment into the government and we get it back in some way.. police, health care, infrastructure, etc.

The problem is that this immediately gives everyone a legal way to avoid paying taxes* - by not possessing money. So, nobody wants to possess money and hesitates to accept money from others - people change their money for gold etc. instead.

Conclusion in short: You created an economy that avoids using money and is based on peer to peer trade creating a highly unpredictable market as there is no stable currency. (Well, there is one, but it has no value since nobody wants it)

Long version:
Now more and more people will do this and as nobody want's to sell you gold or other goods for your money anymore, you turn to the government.

Now, there are two scenarios:
1. The government has reserves and will buy your money. In this case everything is fine but your economy will turn into an economy that doesn't use any money at all. People just swap goods. If they need a money-like flexibility they will use some specific good (gold, crop, horses stuff like that.) or IOUs.
In this scenario you have money but noone's using it.

2. The government doesn't have enough gold or whatever to buy everyones money. As more and more people stop accepting money, it's effectively using value - what worth is a dollar if nobody accepts it? Nothing. This leads to hyperinflation.

*If you don't like the word taxes: People know that they get something back from the government BUT they will also get it if they don't own money (and thus didn't contribute anything). So it would be wise to not own money, instead owning gold/goods that don't lose value.
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Re: Why can't we just print money... ?

Postby Calorus » Tue Nov 11, 2008 2:08 pm UTC

Hang on, basic maths:
target = US Federal Budget Receipts from Income Tax = $1,100,000,000,000
money = M3 = $14,000,000,000,000
required apr =$1,100,000,000,000 / $14,000,000,000,000 = 7.86%

Inflation affects the whole money supply evenly, not just what changes hands.

There are then massive savings to be gained from the downsizing of the IRS's $11,000,000,000 budget - and this is without addressing the fact that almost exactly half of the money you pay in taxes goes straight to your military.
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Re: Why can't we just print money... ?

Postby Zamfir » Fri Nov 14, 2008 1:00 pm UTC

I think this is actually two questions combined:

1. Is it a good idea to rely solely on a wealth tax to finance the government?
2. If so, is inflationary policy a good way to get that wealth tax?

The answer to the first is easy: no, it isn't. It reduces any incentive to save, and it is way too progressive. Meaning that rich people will leave your country, if they can't start a revolution. So a pure wealth tax is a brilliant method to make sure your people will not get rich, or leave before they do.

The second is harder to answer, since countries do in fact use this method to a limited degree. the most obvious effect is that it makes foreigners holding dollar-denominated assets pay for your government, it is in effect a gradual bankruptcy. With he same downside: it will be harder to get foreign money in the future, and it will be harder now, if they suspect you will start inflationary policies.

I am less clear about the effects in closed economy. I suspect will accept your inflationary policy up to the level that it becomes more attractive to move to some 'underground' currency, say gold or shares in reliable companies. But these will have the downsides and dangers of unregulated money, so people will use dollars if the infaltion is not too high, and the government can profit from this. I think this used to be called seigneurage: kings could make money by making coins with less gold in them than face value, and people would accept this up to a level because reliable, regulated currency was worth a price.

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Re: Why can't we just print money... ?

Postby Calorus » Fri Nov 14, 2008 4:26 pm UTC

Zamfir wrote:I think this is actually two questions combined:

1. Is it a good idea to rely solely on a wealth tax to finance the government?
2. If so, is inflationary policy a good way to get that wealth tax?

The answer to the first is easy: no, it isn't. It reduces any incentive to save, and it is way too progressive. Meaning that rich people will leave your country, if they can't start a revolution. So a pure wealth tax is a brilliant method to make sure your people will not get rich, or leave before they do.

The second is harder to answer, since countries do in fact use this method to a limited degree. the most obvious effect is that it makes foreigners holding dollar-denominated assets pay for your government, it is in effect a gradual bankruptcy. With he same downside: it will be harder to get foreign money in the future, and it will be harder now, if they suspect you will start inflationary policies.

I am less clear about the effects in closed economy. I suspect will accept your inflationary policy up to the level that it becomes more attractive to move to some 'underground' currency, say gold or shares in reliable companies. But these will have the downsides and dangers of unregulated money, so people will use dollars if the infaltion is not too high, and the government can profit from this. I think this used to be called seigneurage: kings could make money by making coins with less gold in them than face value, and people would accept this up to a level because reliable, regulated currency was worth a price.


The only closed economy is the Global Economy. This "rich people will leave if they have to pay 7.86% in interest" idea is mystifying.

Look at it this way: if you pay $50,000 per annum to belong to your country club, $44,000 each to send your kids to College per annum, £36,000 for your family's health insurance - where in the world you going to go that will keep you in the style to which you have become accustomed? if the USA did it, then the UK the rest of Europe would, too.

Most importantly, even at 7.86% it should be a massive reduction in taxation for them - unless, of course, between them and their accountants, they're paying a lot, lot less...

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Re: Why can't we just print money... ?

Postby Zamfir » Fri Nov 14, 2008 4:49 pm UTC

Calorus, 7.68% percent of wealth is a lot more than 7.68% of your income. If the real returns to investments are something like 4 or 5 percent (quite reasonable numbers), a 7.68% wealth tax would be equivalent to a capital gains tax of far over 100%.

I have no idea where the 7.68% comes from, but if the government is going to be paid purely from a wealth tax, you either will have to massively shrink the government, or accept a tax rate that will make saving and investing a useless activity. People leaving your country, and investing from there, is the good outcome. In a closed system, no one will save and invest, and investment will have to come purely from the state. That has been tried, and has been found wanting.

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Re: Why can't we just print money... ?

Postby Calorus » Fri Nov 14, 2008 6:17 pm UTC

Zamfir wrote:Calorus, 7.68% percent of wealth is a lot more than 7.68% of your income. If the real returns to investments are something like 4 or 5 percent (quite reasonable numbers), a 7.68% wealth tax would be equivalent to a capital gains tax of far over 100%.

I have no idea where the 7.68% comes from, but if the government is going to be paid purely from a wealth tax, you either will have to massively shrink the government, or accept a tax rate that will make saving and investing a useless activity. People leaving your country, and investing from there, is the good outcome. In a closed system, no one will save and invest, and investment will have to come purely from the state. That has been tried, and has been found wanting.


Definitely true, however far from paying 7.86% (the inflation on the M3 money required to equal federal receipts from federal income tax) they'd still be paying 7.86% offset directly by interest (which they wouldn't earn from tax payments). by the same token, people even, if not especially, the super-rich do not have several billion dollars sitting doing nothing in a bank. As a rule they would invest that capital in property, business or (especially now) in Gold, meaning it would be impervious to the ravages of inflation though, as now, at the mercy of market performance.

More importantly that 7.86% is 3% higher than current - not ideal, however comfortably eclipsed for all but the exceptionally wealthy yet shockingly sedentary.

This also assumes that the current federal income budget is the target and therefore that the federal budget would remain as is.

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Re: Why can't we just print money... ?

Postby mosc » Fri Nov 14, 2008 7:41 pm UTC

The US prints almost a Trillion dollars a year now anyway. It does little more than counter deflation. If the US didn't print any money, deflation would be extreme. Printing money is required to counter deflation. You could print MORE money to CAUSE inflation but that is a different issue. Remember too that printing money COSTS money so not every dollar you print goes into the federal budget. Anyway, I'm just pointing out that 7.86% is an absurdly stupid simplification. Printing money is much more complicated and Outside inflationary and deflationary pressures are also huge factors.
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