Draugnar, so, in China, could they stop taxing at all and print Yen as a replacement and make it work? I honestly don't know the answer to that.

Unfortunately, Steepie, out government **IS** running the printing presses at full speed.

Apart from inflation "locally" (within the US) it also has the unfortunate effect of devaluing our currency overseas. This means the what $50 used to buy (a barrel of oil) now costs $100...so we have to spend more cash overseas, and then all the costs get passed on internally. It's a multiplying effect -- that increased cost of energy ripples through *every* product you buy.

Some would argue that this is a good thing...it causes less energy use, causes investment in "local" energy or "green" energy...which may or may not be good (why not use someone else's oil for cheap and save out own reserves for us?).

But, overall, it is a bad thing. It perverts the natural cost of goods, and, while some believe the government interfering with economics is a good thing, history dictates the opposite is absolutely and always true.

Alex - The soda tax is no different than the sales tax I paid when pruchasing my Mercedes.

Basically the government could say you can only wear shoes if you pay a shoe tax of $1000 per day. This can only happen when government is allowed to encourage/discourage certain personal behavior through taxation.

Exactly, sales tax would not need to exist if government just printed the money it needed. It already does it anyway (in addition to taxing).

jmo: we're talking about an extra 0 added to the currency every decade or so (that was a rather random guess), I think you might be exaggerating. You just change your 50 dollar bill for a 500 dollar bill worth the same (well, you don't, but, for example, if you invest your 50 dollar bill in gold or something it would be a 500 dollar bill in about a decade? Does that make sense?). There should be no change in value if that's done...

"I love the fact that by removing the power of government to tax, it will be impossible for it to use taxes as a means of restricting the individual liberty of people in a manner that discriminates against the poorer members of society."

I love that too, but an inflation tax is even more regressive and hurts the poor - those least likely to see their wages inflate - most of all. Ideally, there would be no taxes and no one would have the power to force others to accept paper money, but if that's not possible, I think the ball and chain of taxation is (moderately) preferable to the economic carnage that would be done by the rampant inflation that is being proposed here.

No, the government doesn't just "print the money it needs" at leats not in the US. Just ask the government workers forced to take furloughs and pay cuts.

As far as soda goes, soda is not a necessity. It is a luxury which is why most states tax soda. Juice and milk are generally not taxed, but soda is. On the other side of the coin, do you know how much tax you pay on every gallon of gas? Yet gas is a necessity even if you don't drive a car as it is used to deliver all the stuff you do buy to the store (just one of many ways gasoline is in your life).

@stepphie - 50 becomes 100 in 2.5 years, 200 in 5 years, 400 in 7.5 years, and 800 in 10 years at 25% inflation. So your 50 would go to 80 then 13000 in 20 years then 200000 in 30 years. So my currnet slary in 30 years would be 400,000,000 annually in just 30 years. My investments would have to outpace inflation so figure my stocks need to double every year so I could afford retirement for just a decade or two after I stop earning an income.

Keep in mind that a little bit of inflation is actually good. It means that consumer and business debt is paid back with dollars that are actually worth less than the original debt, so consumers win. This is why deflation is bad, since we don't want to pay back debt with ads that are now worth MORE than they were at the beginning of the loan.

And no, krellin, printing presses aren't running at full speed. Once again you demonstrate your ignorance of basic economics and what "debt" actually means.

But you could invest in retirement through the government maybe...

You give a load of money to the state, the state pays back including inflation when you want it back... Sounds like a good job for a government.

Or bank. Or whatever. Just anyone still needing money to invest.

This is why I'm glad economists run the world.

Steephie, the situation you're talking about can perfectly be explained by game theory. Each country is an "actor" and they have two choices. 1) Run the printing presses and print money or 2) Act responsibly and control inflation. The first choice will devalue your currency and make your exports more competitive internationally. The second will keep your currency at the market rate. The best situation for the world is that nobody devalues their currency. However, individually, each country is better off devaluing their currency given the other countries maintain theirs. This leads to a situation where everyone starts devaluing their currencies, as is starting to happen in Japan now with the yen and other developed countries. Those whose currencies are not devaluing, such as Australia, Canada, and the U.S. (exchange rate with the Euro and Pound has improved dramatically in the past year) will have their exports suffer as a result.

There are additionally other dangers to inflation. Namely, no one will lend you money and you'll have no hard currency to conduct foreign exchange in. This can been seen in the examples of Zimbabwe, Argentina, Thailand, Vietnam, etc, etc.

@2WL - bond sales still increase the money supply. I believe they're part of M3? So krellin is partially right, but is guilty of exaggeration.

On a slightly tangential note - I have recently been studying bonds and obviously don't understand them as well as I thought I did, could you explain how a government or company issuing bonds will increase the money supply?

"Keep in mind that a little bit of inflation is actually good. It means that consumer and business debt is paid back with dollars that are actually worth less than the original debt, so consumers win."

This is a myth. Inflation is always built into the interest rate on the loan - no banker is going to lend money and expect to get less when it is paid than he was originally lending out. Inflation is never good, because it destroys the value of savings - discouraging private accumulations of capital which should be the foundations for big-ticket investments like homes or businesses - and forcing everyone to become a debtor instead. The result of "just a little" inflation is inevitable - the wealth of the public is gradually drained away, "just a little" at a time, by bankers with government license to lend money that isn't actually theirs at interest rates that always exceed the rate of inflation.

That's why variable rate loans are normally prime plus some percentage and fixed rate loans at a higher percentage than the variable rate at time of issue.

The point being that deflation is bad :)

if both deflation and inflation are bad why is there so much of both?
sorry to jump in

Inflation isn't bad. Too much inflation is really bad.

Deflation means prices are lower, and the consumer's dollars go further. This is not a bad thing. America had a rapidly increasing standard of living in the last quarter of the 19th century, which was also a period of widespread deflation.

"Inflation is never good, because it destroys the value of savings"
just restating things posted before, perhaps Tolstoy 'a lot of inflation'

Tolstoy - the real question is whether or not standard of living increased because of the deflation, or despite it. If I had more time to research, I'm betting a very strong argument could be made saying deflation was not a reason for the success.

Deflation is bad because it reduces the incentive to spend. Why invest in a house today when you can wait a bit and buy it less tomorrow? The "cost" of spending money increases during periods of deflation, so there will be less spending and an economic slowdown.

dr. octagonapus - there will always be some sort of inflation or deflation in the economy. If you withdraw money from your bank account, that is a form of deflation. If you add money to the bank account, it will be inflation. If the number of people in the world grows and the money supply does not, there will be deflation. There are so many variables that deflation/inflation will never be zero.

"I'm betting a very strong argument could be made saying deflation was not a reason for the success."

Deflation wasn't the reason for the success, that it is true: it was *evidence* of that success. People could afford to buy more and more each year with the same wages, as productivity increased and there was no one printing up new fiat money to dilute the value of those wages.

"Why invest in a house today when you can wait a bit and buy it less tomorrow?"

Because people like to live in houses, and the modest decrease in the real price (unlike inflation, drastic, sudden, and or severe deflation is nearly impossible) isn't worth the wait.

People like to live in houses, but they like paying less for the same house even more. The same goes for cars, electronics, and most all consumer goods.

^^Which is why I am not going to be buying the PS4 until it drops in price

True enough. But newly released DVDs still get bought at $20-$30, even though that exact same DVD will be in the $5 bargain bin in just a couple of years.

"the modest decrease in the real price (unlike inflation, drastic, sudden, and or severe deflation is nearly impossible)"

Moderate periods of deflation happened 5 times between the Civil War and the Great Depression. These periods each lasted at least 2 years, so that's 10 years out of 65 years. Each of these periods (save one) saw at least 10-15% decreases in prices.

http://www.nber.org/papers/w3174

which then is better, if stability is 'impossible' (i realize stability is probably the wrong word but i don't know what word to use) then should the world be trying to gently deflate or gently inflate?
to quote muse "An economy based on endless growth is... Un-sus-tain-able!"
or is this not true