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Government programs that benefit the poor and middle class benefit the poor and middle class, by definition really. But since the government is taking this mone

Government programs that benefit the poor and middle class benefit the poor and middle class, by definition really. But since the government is taking this money out as a loan, they need to pay interest on it. The interest they pay is certainly higher than any Seigniorage benefit they get. So the loan (where paying interest is required) is essentially the wall past which Seigniorage no longer benefits the receiver - unless they're getting a below-market-rate loan. Even if the loans were below-market-rate, or 0% interest, this government spending of money that isn't collected in taxes is a recipe for disaster. Eventually, the tax payers (who are primarily the middle class) will pay for it. And often the things the government spends money on are not very efficient, so deficit spending is extra bad in those situations.

legutierr 5y ago
> Government programs that benefit the poor and middle class benefit the poor and middle class, by definition really. Well, of course. But what I was inquiring about was with regard to what would happen if such spending was not financed through deficits but was funded instead by direct money creation, while at the same time money creation by the central bank, etc., was proportionally diminished. If all or most new money originated from entitlement spending (money printed for that purpose), how would that change the inflation dynamic?
- billytetrud 5y ago
  > what would happen if such spending was not financed through deficits but was funded instead by direct money creation Theoretically it would be better because you wouldn't need to pay a fee (interest) to middle men (banks). However, it would also be potentially a lot more abusable if congress could just create as much money as they want. Arguably the Fed now is abusing this ability anyway, so maybe it would be at least no worse if the government could do it directly. > how would that change the inflation dynamic? Well, devaluation would still happen, so the market distortion that incentivizes bad investments and removes an avenue for saving would still exist. If banks continue to lend out more money than they have, then we'd still have a debt cycle of booms and busts. However, the taxpayers would save money. The people gaining from Seigniorage wouldn't change much - whoever the government gives funding to would be gaining from seigniorage, with the same wealth sapping effects from the rest of the population. It might be a reasonable improvement.

legutierr 5y ago

> Government programs that benefit the poor and middle class benefit the poor and middle class, by definition really. Well, of course. But what I was inquiring about was with regard to what would happen if such spending was not financed through deficits but was funded instead by direct money creation, while at the same time money creation by the central bank, etc., was proportionally diminished. If all or most new money originated from entitlement spending (money printed for that purpose), how would that change the inflation dynamic?

billytetrud 5y ago
> what would happen if such spending was not financed through deficits but was funded instead by direct money creation Theoretically it would be better because you wouldn't need to pay a fee (interest) to middle men (banks). However, it would also be potentially a lot more abusable if congress could just create as much money as they want. Arguably the Fed now is abusing this ability anyway, so maybe it would be at least no worse if the government could do it directly. > how would that change the inflation dynamic? Well, devaluation would still happen, so the market distortion that incentivizes bad investments and removes an avenue for saving would still exist. If banks continue to lend out more money than they have, then we'd still have a debt cycle of booms and busts. However, the taxpayers would save money. The people gaining from Seigniorage wouldn't change much - whoever the government gives funding to would be gaining from seigniorage, with the same wealth sapping effects from the rest of the population. It might be a reasonable improvement.