6 ms·

I'm not sure I'm cynical enough to say it's the reason, but inflation helps governments by reducing the real size of their enormous debts.

• SideburnsOfDoom 4y ago
  > inflation helps governments by reducing the real size of their enormous debts What is the reason that you think that governments care about the size of their debts? Do not assume that "government debt" is anything like "household debt".
  • bluGill 4y ago
    Because governments still have to pay back their debts at sometime. While they can default that doesn't work out very well - local residents get mad about losing their investments, and foreign rich people learn their lesson and won't borrow more money for a while (at least not on good terms). There are significant differences, but in the end governments also pay back debt.
    • SideburnsOfDoom 4y ago
      I see you're not the parent poster. Your response just restates the premise that it matters, implicitly assuming (falsely) that it is fundamentally similar to a household. https://www.forbes.com/sites/francescoppola/2018/04/30/governments-are-nothing-like-households/?sh=4098ebf54f8b https://www.forbes.com/sites/francescoppola/2018/04/30/gover... The alternative is not "default" that pathological case is not what anyone was talking about at all, the alternative is a government continuing to be in debt, servicing it and rolling it over. Public debt is private wealth, that's who holds the bonds. > There are significant differences, but in the end ... But in the end, "The analogy has been characterized by economists as misleading and false, as the functions and constraints of governments and households are vastly dissimilar" https://en.wikipedia.org/wiki/Government-Household_analogy https://en.wikipedia.org/wiki/Government-Household_analogy
      • llimos 4y ago
        > I see you're not the parent poster. That's the way HN works, and it's a good thing, but if you insist, here I am. It's true that governments don't see it the same way as households. But inflation provides them with a free way to reduce their debts (at the cost of their country's savers and earners, effectively). Every dollar not spent on servicing the debt can be spent on something else instead.
        • SideburnsOfDoom 4y ago
          > Every dollar not spent on servicing the debt can be spent on something else instead. Point is, when it comes to households, you can meaningfully say "Every dollar not spent on $x can be spent on something else instead". When it comes to a government that controls the supply of dollars, that statement is not directly meaningful. There is no "every dollar" - the money supply is expanded or contracted when it's necessary and beneficial to do so. The misconception hasn't moved on since grandparent post. Can a government get this choice wrong? Sure. Does a government count dollars and allocate them like a household does? No. Is this spending "depleting the bank account" - not usually, it's literally circulating money into private hands. It depends on other factors like who gets it, do they pay taxes and what other public good is done thereby.
          • llimos 4y ago
            > a government that controls the supply of dollars In most Western countries, this is the function of the central bank, not the government.
            • SideburnsOfDoom 4y ago
              While you are correct that "Central banks in most developed nations are institutionally independent from political interference" (1) But this is a) not in the private sector, it is acting to "manages the currency and monetary policy of a state" to "implement a country's chosen monetary policy" State. Country. b) more importantly, this is still utterly unlike a household, where no such function exists in any form. Thank you for the pedantry unrelated to any of the main points though. 1) https://en.wikipedia.org/wiki/Central_bank https://en.wikipedia.org/wiki/Central_bank
• gruez 4y ago
  That doesn't make sense because creditors will bake that into their interest rates. Instead of charging 2% with 0% inflation, they'll charge 4% with 2%inflation.
  • conductr 4y ago
    And you just explained why inflation is expected. It’s a byproduct of interest/cost of capital. If there was some completely free capital available, there would be no inflation. But it would have to be available to everyone and would have to be risk free; so not possible.
• belltaco 4y ago
  Governments have to pay higher interest rates on their enormous debts because of inflation.
  • fileeditview 4y ago
    Only for future debt.
• tuyiown 4y ago
  Governments loans in their own currency, indexed on inflation.
• AmericanChopper 4y ago
  Inflation doesn’t really help with this, but GDP growth does.