7 ms·

I always wondered if there was a way to effectively "burn" one's entire wealth, creating a small deflationary event that would increase the value of existing do

I always wondered if there was a way to effectively "burn" one's entire wealth, creating a small deflationary event that would increase the value of existing dollars. How could one do this? Donate to the Federal Reserve? Or would you literally have to cash everything out and burn it?

hollerith 2y ago
According to my understanding, burning US dollar bills, donating to the Fed (if such a thing is possible) and donating to the Treasury are approximately equivalent in their effects. What puts a lid on how much money the Fed creates is the desire to keep inflation to reasonable levels, preferably 2% per year. Your burning your cash allows the Fed to create more while adhering to their inflation target. Someone please correct me if I am wrong, but my understanding is that although the Fed decides how much money is created, the Fed is not allowed to keep or to spend newly-created money, but rather must give it to the Treasury (perhaps through some complicated or non-obvious mechanism) which makes it available for the government to spend.
- MobiusHorizons 2y ago
  At least one way they do this is to buy treasury bonds. It is not clear to me what happens to the interest though .
willcipriano 2y ago
A big part of modern monetary theory is taxing the newly printed money and putting it towards (wasteful) government programs to "burn it" in a sense. Predictably, politicians who support MMT only did the printing part and skipped that bit once inflation started.
- bialpio 2y ago
  That does not feel like burning the money, more like propping up the private sector (naively, government's deficit is going to be private sector's surplus if you don't actually reduce the amount of money in circulation).
- VirusNewbie 2y ago
  How does that burn the money? If the government is spending the money, it's going to federal employees and purchasing good and services from the general economy.
  - kelseyfrog 2y ago
    It helps to conceptualize the circuit of money as it flows from government(G) to the private sector(P) back to the government as G-P-G. The outlays(G-P) and receipts(P-G) can both be increased or decreased to affect aggregate demand. MMT's view is that inflation can be a result of aggregate demand outstripping economic capacity, though not the only one. Supply-side constraints, resource shortages, or structural bottlenecks can also lead to inflation. MMT emphasizes that taxation (P-G) is not necessary to "fund" government spending. Instead, taxation primarily serves to control inflation and create a demand for the currency. Taxation creates a value for the currency since taxes are payable only in the government's currency. When we hold the P-G-P view of government spending, we assume it operates like a household - that a government has to collect taxes before spending and this is viewed by MMTheorists as an antiquated perspective. The misconceptions of "The government as a household" were based on the gold standard or fixed exchange rate systems, which since 1971 no longer apply.
    - hgomersall 2y ago
      Please everyone read this comment. Any disagreements should come with relevant references showing how it's wrong. An additional point to add is the mechanism by which taxation controls inflation. Tax serves to suppress demand in the private sector, freeing up resources that can then be bought at non-inflated prices. This is why super wealthy people are irrelevant to a sovereign government's ability to spend; their marginal propensity to consume is too low to be seriously impacted by normal levels of taxation. It's also why tax has to be broad base to be useful.
      - kelseyfrog 2y ago
        I will provide a set of example critiques to begin. MMT alone may not provide sufficient guidance on how to adjust outlays and receipts to manage employment and inflation. MMT may not be politically feasible. Politicians may not be navigate politically unpopular but economical necessary. MMT may be domestically sound, but challenging to implement regarding international trade. It may result in devaluing compared to other currencies. MMT may suggest that interest rates can be kept low indefinitely. It's unclear if this would result in excessive risk taking. MMT may not be applicable to developing economies. MMT may work in the short term to manage employment and demand but fail to cultivate long term economic development. MMT's implication as having a larger governmental impact on investment may crowd out private sector investment. MMT if implemented could be constrained by international investors. If international investors dislike a policy, it may have domestic implications. MMT depends on having a government effective enough to implement it. If a government is too dysfunctional, MMT may fail in practice.
sdenton4 2y ago
In fact, dragons are important stabilizing influences in dungeon economics. The hoard of gold isn't inflationary until the adventurers liberate it and start buying wands and stuff.
- patwolf 2y ago
  Reminds me of something I read years ago about how Ultima Online would create "gold sinks", super expensive items that served no purpose other than help remove gold from the economy and prevent inflation.
  - koolala 2y ago
    I guess the trick there is they don't spend it. The money leaves the virtual economy. IRL that's impossible.
  - endgame 2y ago
    This is a problem with all kinds of virtual world economies. Players accumulate so much gold that some substitute becomes more useful. Diablo II had the Stone of Jordan, for example.
- deleted 2y ago
  [deleted]
ckemere 2y ago
https://en.m.wikipedia.org/wiki/The_KLF https://en.m.wikipedia.org/wiki/The_KLF
ChadNauseam 2y ago
Couldn't you just not spend or invest the money? I think putting it in a chest and burying it in an unmarked location would be equivalent to burning it.

hollerith 2y ago

According to my understanding, burning US dollar bills, donating to the Fed (if such a thing is possible) and donating to the Treasury are approximately equivalent in their effects. What puts a lid on how much money the Fed creates is the desire to keep inflation to reasonable levels, preferably 2% per year. Your burning your cash allows the Fed to create more while adhering to their inflation target. Someone please correct me if I am wrong, but my understanding is that although the Fed decides how much money is created, the Fed is not allowed to keep or to spend newly-created money, but rather must give it to the Treasury (perhaps through some complicated or non-obvious mechanism) which makes it available for the government to spend.

MobiusHorizons 2y ago
At least one way they do this is to buy treasury bonds. It is not clear to me what happens to the interest though .

willcipriano 2y ago

A big part of modern monetary theory is taxing the newly printed money and putting it towards (wasteful) government programs to "burn it" in a sense. Predictably, politicians who support MMT only did the printing part and skipped that bit once inflation started.

bialpio 2y ago
That does not feel like burning the money, more like propping up the private sector (naively, government's deficit is going to be private sector's surplus if you don't actually reduce the amount of money in circulation).
VirusNewbie 2y ago
How does that burn the money? If the government is spending the money, it's going to federal employees and purchasing good and services from the general economy.
- kelseyfrog 2y ago
  It helps to conceptualize the circuit of money as it flows from government(G) to the private sector(P) back to the government as G-P-G. The outlays(G-P) and receipts(P-G) can both be increased or decreased to affect aggregate demand. MMT's view is that inflation can be a result of aggregate demand outstripping economic capacity, though not the only one. Supply-side constraints, resource shortages, or structural bottlenecks can also lead to inflation. MMT emphasizes that taxation (P-G) is not necessary to "fund" government spending. Instead, taxation primarily serves to control inflation and create a demand for the currency. Taxation creates a value for the currency since taxes are payable only in the government's currency. When we hold the P-G-P view of government spending, we assume it operates like a household - that a government has to collect taxes before spending and this is viewed by MMTheorists as an antiquated perspective. The misconceptions of "The government as a household" were based on the gold standard or fixed exchange rate systems, which since 1971 no longer apply.
  - hgomersall 2y ago
    Please everyone read this comment. Any disagreements should come with relevant references showing how it's wrong. An additional point to add is the mechanism by which taxation controls inflation. Tax serves to suppress demand in the private sector, freeing up resources that can then be bought at non-inflated prices. This is why super wealthy people are irrelevant to a sovereign government's ability to spend; their marginal propensity to consume is too low to be seriously impacted by normal levels of taxation. It's also why tax has to be broad base to be useful.
    - kelseyfrog 2y ago
      I will provide a set of example critiques to begin. MMT alone may not provide sufficient guidance on how to adjust outlays and receipts to manage employment and inflation. MMT may not be politically feasible. Politicians may not be navigate politically unpopular but economical necessary. MMT may be domestically sound, but challenging to implement regarding international trade. It may result in devaluing compared to other currencies. MMT may suggest that interest rates can be kept low indefinitely. It's unclear if this would result in excessive risk taking. MMT may not be applicable to developing economies. MMT may work in the short term to manage employment and demand but fail to cultivate long term economic development. MMT's implication as having a larger governmental impact on investment may crowd out private sector investment. MMT if implemented could be constrained by international investors. If international investors dislike a policy, it may have domestic implications. MMT depends on having a government effective enough to implement it. If a government is too dysfunctional, MMT may fail in practice.

sdenton4 2y ago

In fact, dragons are important stabilizing influences in dungeon economics. The hoard of gold isn't inflationary until the adventurers liberate it and start buying wands and stuff.

patwolf 2y ago
Reminds me of something I read years ago about how Ultima Online would create "gold sinks", super expensive items that served no purpose other than help remove gold from the economy and prevent inflation.
- koolala 2y ago
  I guess the trick there is they don't spend it. The money leaves the virtual economy. IRL that's impossible.
- endgame 2y ago
  This is a problem with all kinds of virtual world economies. Players accumulate so much gold that some substitute becomes more useful. Diablo II had the Stone of Jordan, for example.
deleted 2y ago
[deleted]

ckemere 2y ago

https://en.m.wikipedia.org/wiki/The_KLF https://en.m.wikipedia.org/wiki/The_KLF

ChadNauseam 2y ago

Couldn't you just not spend or invest the money? I think putting it in a chest and burying it in an unmarked location would be equivalent to burning it.