I think this is essentially correct. If you treat the U.S. FedGov and the FRB in combination as a single entity, borrowing plus QE means the FedGov was spending fiat money, exactly as OP wishes. As to why this hasn’t caused inflation I think two of the main reasons are (1) the stimulus was inadequate to break recession, and (2) financial markets think (or hope?) QE will not become a permanent on-going method.
I’d ask OP what problem his solution is intended to solve. AFAICT, the problem he addresses is to avoid taxation because “everyone knows taxes are evil theft.” Problem is, even the people stupid enough to think taxes are evil, are smart enough to understand the dangers of inflationary fiat money. Solution is to educate voters, and to develop a political system that seeks what’s best for the 99%, not just what’s best for the 1%.
The reason you might not want to do it is inflation. Unexpected inflation’s bad because people can’t make intelligent decisions about borrowing and investing if they don’t know what money’s going to be worth in the future. One side or the other gets hurt, and exchanges don’t get done that would have been helpful to everyone.
Inflation wouldn’t be as bad as what people make out, though. Every measure of the money supply has been increasing faster than inflation for decades. The Fed tripled monetary base recently without causing a ripple of inflation. There’s no simple relationship between the two; it’s not like increasing the money supply by a certain amount increases inflation by the same amount. Instead, what happens is money first goes to savings (if there’s a demand for savings) then to increased production (if there’s unemployment) and finally to inflation.
In other words, the government could print bales of money now, at a time when financial assets have sharply depreciated and there’s lots of unemployment - and only good things would happen.
But eventually inflation would pick up, and you’d want to be able to control it to prevent the problems that happen when people are afraid to borrow or lend.
But generally you’re right. A growing economy needs a growing money supply to continue growing. A government can supply the money by running a deficit (what we’ve been doing) or by printing the money. Ultimately it’s the same thing.
Bernanke argues that there has been no real QE - rather he has initiated a large Credit Easing (CE) program.
CE does not add to the monetary base, M0 or M1. M1, the last I looked, is up only in proportion to past increases.
The advantage of CE is kind of like the OP suggested. The Fed earned $125 billion in 2009/10 which it sent to the Treasury. The earnings were from agency bonds and US Treasuries. The Fed now lists $2.8 trillion in these assets on its balance sheet. The Fed pays out $40 billion to banks in interest on reserves of $1.6 trillion at .025%. That money is not circulating - obviously.
The Fed needs to be more dovish in my opinion. There is plenty of action to be taken before inflation kicks in.
I don’t think of taxes as evil theft. I just think the tax system is too complicated, with too many loopholes and too much unfairness. For instance, people in the underground economy pay no income tax. Also, it creates a lot of political hassling and corruption. If the government could print money instead of collecting taxes, Congress could just concentrate on hassling over how to spend the money (which also involves some corruption). We wouldn’t have these endless fights over whether to tax the rich more than the poor, whether to give a tax break for college tuition, etc. We wouldn’t have to keep track of essentially every penny we take in or spend and report all this to the government every year.
Actually, some large amount of money is spent on accounting and tax preparation each year in relation to the income tax, not to mention lost efficiency pursued in the name of saving taxes through arbitrary provisions. This may amount to 10% or more of the taxes actually collected. If taxes were not assessed and collected, this amount would be saved and possibly would counteract some of the inflationary or other negative effects of the government printing money.
I apologize for placing you in the “evil theft” camp. However, if “arbitrariness” is a form of “unfairness” it strikes me that any just-inflate-money solution is going to be more unfair. Unless one believes that a maximally flat tax scheme is maximally “fair”.
“Loopholes” are intended, believe it or not, to improve “fairness” (though in practice they may be more a result of politicking). I agree that evasion is a big problem and regret that U.S.A. and other countries have a culture in which evasion is acceptable – I remember an article in Forbes condemning U.S. prosecution of tax evaders, saying they should instead go after criminals. :smack:
There are simpler ways for a government to obtain revenue than income taxes. Real-estate property taxes are straightforward and cannot be evaded. Tariffs on carbon fuels, financial transactions, airwaves, etc. may be similarly desirable. But any system that leads to a high inflation rate is likely to be worse than the problem it tries to solve. Business contracts become much more difficult to agree when there is an expectation of high inflation. The problem would be reduced if the inflation rate were a predictable constant, but I doubt you would achieve that.
10% seems high; do you have any Cite for that?
If avoiding such accounting waste seems desirable to you (and it sure does to me) I would focus my political energy on achieving single-payer health care.
Again, this only even potentially works in a closed system. But in any economy where we import a significant amount of goods, it falls apart.
You’ve never actually addressed this point. How do you handle the fact that exchange rates will get ever worse to the point you’re suddenly looking at $1000 for a barrel of oil, even though the same commodity price has been stable when valued in Yen?
(You were referring to my estimate of the costs of accounting related to income taxes, and the preparation of the returns.)
This is taken from a Wikipedia article: fihttp://en.wikipedia.org/wiki/Tax_
The cost of preparing and filing all business and personal tax returns is estimated to be $250 to $300 billion each year. According to a 2005 report from the U.S. Government Accountability Office, the efficiency cost of the tax system—the output that is lost over and above the tax itself—is between $240 billion and $600 billion per year. For tax return preparation, Americans spent an amount equal to roughly 20% of the amount collected in taxes.[4][5]
As I and others said above, it is not clear there would be that much inflation. Even if there were, people’s incomes would go up proportionately to the cost of oil or whatever, and the dollar would go down in relation to foreign currencies, so everything would balance out.
Anything would be better than the present system . wall st buzzards who create it out of thin air as a debt instrument,You can forget about creating a fairer distrubution of Capital, the ones who are in control own and occupy the media and all important offices of government, so what they say goes –
The goverment should be in full controll of our money system, not given to a private corporation of bank members. How it Could be organized with rules is another question, but there would be no excuse for unemployment if the government owned the printing machine, Just think of the futuristic looking infrastructure we could have if we put everyone to work, poverty could be eliminated, they don’t teach the fiat system in schools, few people understand how money is created – methinks that’s the way they want it – :dubious: Wall st says no?
A lot of what is claimed to be spent involves the monies that corporations pay, not individual taxpayers. In addition, much of what is claimed to be “spent” involves multiplying the time an individual might spend on tax preparation by the rates for professional preparers–so it is a guess based on an inflated rate and not actually money spent by the citizens.
I think the idea has more merits than the thread gives it credit for, though it probably isn’t workable. It is essentially a property tax on dollars. It gets closer to a wealth tax than anything we currently have, which I think is more fair than an income tax. Tax avoidance disappears, since if you exchange your dollars for another currency, whoever you exchanged with will have to pay that tax, and you paid that person a premium to pay your taxes. The 20% of gdp annual printing won’t cause 20% inflation annually, since gdp is a comparison to income, but inflation caused by printing money is a comparison to wealth. If I made 100k a year (I don’t), had 500k in dollars (I don’t), then my 20k in replaced taxes lowers the value of my 500k by 4%, not 20%. Assuming a linear relationship between dollars printed and value of dollars, which is probably a gross simplification.
There are downsides. This is taxing non-Americans who own dollars, and doesn’t tax Americans who are wealthy but don’t have dollars. When this is announced, everyone’s dollars become much less valuable, since dollars go from untaxed to taxed. Americans are probably ok, since they will get more income, but non-Americans will be screwed. The poor who are in debt benefit, but anyone unemployed and living off savings will suffer. It helps the young and hurts the old. Announcing this will cause a massive amount of panic, even if the actual amount of inflation isn’t a huge problem.
This would need to be implemented carefully to avoid dollars retuning to the US in a panic, devaluing the currency to nothing in no time. However it is actually one of the best and most efficient ways to fund government and promote spending which promotes business. It only penalizes wage earners who are not able to keep pace with the inflation which is not different from wage earners who are already not compensated enough. It doesn’t really become a wealth tax if the wealthy adjust their investments though. It helps the economy but not the disparities. You can adjust many factors without changing the disparities as long as the wealthy are able to compensate.