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I think we agree that QE is not inflationary (and obviously despite years of QE inflation is low) However, monetization if the debt (which is very different fr

I think we agree that QE is not inflationary (and obviously despite years of QE inflation is low) However, monetization if the debt (which is very different from QE) is definitely inflationary. Would you suggest that every country could simply print fresh currency and pay off the national debt without causing inflation?

RobertoG 7y ago
Please, note that I'm not saying that QE it's not inflationary (it's not), I'm making a more general statement: adding reserves to the bank system it's not inflationary. You probably agree with me that what create inflation is the spending in the economy. One thing is the public deficit and another is the public debt. The deficit happens when the government spend in the economy. If the government (or the private sector) spend too much in the economy inflation will happen. The other way inflation can happen is by some kind of supply shock. The public debt is just the accumulated of the money that has been already spent in the economy. So, the public debt can't be inflationary. That money is already in the economy! Paying the public debt it's just not emitting new debt and waiting until all the debt mature. Could that be done (if we forget for a moment the rules currently in place)? Yes, the government just could spend what they need without emitting bonds. The real restrictions in the government spending would be the same: don't spend more than the economy can provide or you will get inflation. The public debt number is basically irrelevant. This is true for countries with its own currency and the debt denominated in its own currency, otherwise the issue it's very different. We are not going to see a crisis created by a public debt problem of countries that have their own currency, but the public debt, of the countries in the Euro, is a good candidate for the source of the next crisis.

RobertoG 7y ago

Please, note that I'm not saying that QE it's not inflationary (it's not), I'm making a more general statement: adding reserves to the bank system it's not inflationary. You probably agree with me that what create inflation is the spending in the economy. One thing is the public deficit and another is the public debt. The deficit happens when the government spend in the economy. If the government (or the private sector) spend too much in the economy inflation will happen. The other way inflation can happen is by some kind of supply shock. The public debt is just the accumulated of the money that has been already spent in the economy. So, the public debt can't be inflationary. That money is already in the economy! Paying the public debt it's just not emitting new debt and waiting until all the debt mature. Could that be done (if we forget for a moment the rules currently in place)? Yes, the government just could spend what they need without emitting bonds. The real restrictions in the government spending would be the same: don't spend more than the economy can provide or you will get inflation. The public debt number is basically irrelevant. This is true for countries with its own currency and the debt denominated in its own currency, otherwise the issue it's very different. We are not going to see a crisis created by a public debt problem of countries that have their own currency, but the public debt, of the countries in the Euro, is a good candidate for the source of the next crisis.