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Right. Correct me if I am wrong, but that causes inflation. The end result is we all pay for it either way.

quadrangle 9y ago
It only causes inflation if (A) the currency distribution was already providing adequate aggregate buying power for existing supply, (B) growth in real wealth and productivity isn't happening along with the increase in currency, and (C) taxes aren't increased to offset the new money.
digi_owl 9y ago
It depends. If the debt being repaid is in local (national) currency, perhaps but less likely than if it is in foreign currency. If it is all local, then it becomes a question of whether the nation has the production capacity and investment opportunities to absorb the additional currency in circulation. If it is all most mostly foreign, the exchange rate can go haywire leading to any imports exploding in price. And if the nation then is relying on imports for some stable or other, things can go very badly very quickly.
zamalek 9y ago
Marginal amounts of inflation are required for fiat currency to remain liquid. If currency were deflationary, people would be encouraged to hoard it. A deflationary spiral[1] is one example of what can happen in a deflationary market. Inflation is a feature; not a flaw. [1]: https://www.investopedia.com/terms/d/deflationary-spiral.asp https://www.investopedia.com/terms/d/deflationary-spiral.asp
mfarris 9y ago
Mild to moderate inflation is usually considered useful in paying back debt, as the constant dollar value of the debt decreases. Even with the low inflation we've had over the last 20 years, if you borrowed $1000 in 1997 with 0% interest and wanted to pay it back now, the 1000 "2018 dollars" you'd pay would only be "worth" 655 "1997 dollars". The real danger is in deflation, which causes the constant dollar value of the debt to grow.
jhallenworld 9y ago
I think it's much more complicated. The US government has been printing tons of money in the form of "QE" and "QE2", but with little or no inflation. I believe the reason is that all of this money has not ended up in the hands of the general public in the form of higher wages. When all of our wages collectively go up, you can bet the cost of goods will also go up, with no change in affordability since the same amount of your work in man-hours is needed to both produce and purchase the goods. I think we are long overdue for wage inflation, even with the associated cost increase of goods. The positive affect of it is to make fixed rate loans less burdensome. Why enslave ourselves to the past?
- AnimalMuppet 9y ago
  > The US government has been printing tons of money in the form of "QE" and "QE2", but with little or no inflation. Well, QE happened right after the crash of 2008. In that crash, something like $4 trillion evaporated, much of it in the real estate market. The Fed created something like $4 trillion with QEx. That wasn't inflationary. However, it prevented the crash from being deflationary and destroying everyone who was in debt.
- dragonwriter 9y ago
  > The US government has been printing tons of money in the form of "QE" and "QE2" “printing” is inaccurate, and more importantly “has been” should be “was”; the series of rounds of QE (QE1-QE3) ended in 2014. > When all of our wages collectively go up, you can bet the cost of goods will also go up, with no change in affordability since the same amount of your work in man-hours is needed to both produce and purchase the goods. This would be a tolerably reasonable argument based on the (inaccurate in both cases, but understandable) ideas that prices are entirely driven by supply-side concerns, and ultimately all costs are labor cost, in the case of a global wage increase, but domestic wage increase won't have that effect in a global market even with the inaccurate assumptions that would justify that conclusion for a global increase.
  - jhallenworld 9y ago
    Well QE is still going on in that the fed still holds all of the assets it bought. Here is an article from last September saying that the fed is starting to sell (or not turn over) the assets: https://www.ft.com/content/caf45d6a-9e28-11e7-8cd4-932067fbf946 https://www.ft.com/content/caf45d6a-9e28-11e7-8cd4-932067fbf... Of course I agree with you on the global wage increase, I ignored the fact of multiple currencies. I kind of think that all prices are related to (possibly delayed) labor costs, along the lines of "how much work do I have to do to buy it?" and "I'll extract that oil for you only if you are willing to pay at least what I have to pay my employees to do it".

It only causes inflation if (A) the currency distribution was already providing adequate aggregate buying power for existing supply, (B) growth in real wealth and productivity isn't happening along with the increase in currency, and (C) taxes aren't increased to offset the new money.

digi_owl 9y ago

It depends. If the debt being repaid is in local (national) currency, perhaps but less likely than if it is in foreign currency. If it is all local, then it becomes a question of whether the nation has the production capacity and investment opportunities to absorb the additional currency in circulation. If it is all most mostly foreign, the exchange rate can go haywire leading to any imports exploding in price. And if the nation then is relying on imports for some stable or other, things can go very badly very quickly.

zamalek 9y ago

Marginal amounts of inflation are required for fiat currency to remain liquid. If currency were deflationary, people would be encouraged to hoard it. A deflationary spiral[1] is one example of what can happen in a deflationary market. Inflation is a feature; not a flaw. [1]: https://www.investopedia.com/terms/d/deflationary-spiral.asp https://www.investopedia.com/terms/d/deflationary-spiral.asp

mfarris 9y ago

Mild to moderate inflation is usually considered useful in paying back debt, as the constant dollar value of the debt decreases. Even with the low inflation we've had over the last 20 years, if you borrowed $1000 in 1997 with 0% interest and wanted to pay it back now, the 1000 "2018 dollars" you'd pay would only be "worth" 655 "1997 dollars". The real danger is in deflation, which causes the constant dollar value of the debt to grow.

jhallenworld 9y ago

I think it's much more complicated. The US government has been printing tons of money in the form of "QE" and "QE2", but with little or no inflation. I believe the reason is that all of this money has not ended up in the hands of the general public in the form of higher wages. When all of our wages collectively go up, you can bet the cost of goods will also go up, with no change in affordability since the same amount of your work in man-hours is needed to both produce and purchase the goods. I think we are long overdue for wage inflation, even with the associated cost increase of goods. The positive affect of it is to make fixed rate loans less burdensome. Why enslave ourselves to the past?

AnimalMuppet 9y ago
> The US government has been printing tons of money in the form of "QE" and "QE2", but with little or no inflation. Well, QE happened right after the crash of 2008. In that crash, something like $4 trillion evaporated, much of it in the real estate market. The Fed created something like $4 trillion with QEx. That wasn't inflationary. However, it prevented the crash from being deflationary and destroying everyone who was in debt.
dragonwriter 9y ago
> The US government has been printing tons of money in the form of "QE" and "QE2" “printing” is inaccurate, and more importantly “has been” should be “was”; the series of rounds of QE (QE1-QE3) ended in 2014. > When all of our wages collectively go up, you can bet the cost of goods will also go up, with no change in affordability since the same amount of your work in man-hours is needed to both produce and purchase the goods. This would be a tolerably reasonable argument based on the (inaccurate in both cases, but understandable) ideas that prices are entirely driven by supply-side concerns, and ultimately all costs are labor cost, in the case of a global wage increase, but domestic wage increase won't have that effect in a global market even with the inaccurate assumptions that would justify that conclusion for a global increase.
- jhallenworld 9y ago
  Well QE is still going on in that the fed still holds all of the assets it bought. Here is an article from last September saying that the fed is starting to sell (or not turn over) the assets: https://www.ft.com/content/caf45d6a-9e28-11e7-8cd4-932067fbf946 https://www.ft.com/content/caf45d6a-9e28-11e7-8cd4-932067fbf... Of course I agree with you on the global wage increase, I ignored the fact of multiple currencies. I kind of think that all prices are related to (possibly delayed) labor costs, along the lines of "how much work do I have to do to buy it?" and "I'll extract that oil for you only if you are willing to pay at least what I have to pay my employees to do it".