The statement 'inflation is a tax' is polemic and unsubstantive. This claim would be correct if you assume people aren't that intelligent and don't understand that inflation occurs. If your statement was correct, it would mean the whole rational for markets wouldn't exist. People make choices with rational expectation going forward.
Well this is complete and utter nonsense. Inflation is VERY MUCH a tax, if people know it occurs or not. How else could government fund things with inflation otherwise? People knowing about inflation only affects how much holders of cash or loans lose or win. The tax can't disappear though.
The fact is, government spends money on something. This something is no longer available to the private sector. Thus it's a tax. It's not a tax that's sized according to inflation rate, as some people benefit and some lose due to the inflation itself (which just means that this tax has more consequences than other taxes) - more people have to lose though. Rather, the inflation tax is as high as the amount of increase in government's spending power due to it.
Thus you get government budget constraint which is: Money printing+other taxes + burrowing.
Inflation tax is commonly called "Seigniorage".
People innately understand that inflation occurs and plan according which means it's not theft. Individuals can invest in real assets, such as gold, silver or real estate if they're really worried about inflation, although stocks and bonds have historically performed MUCH better. As a matter of fact, inflation is a normal part of economic growth, and can be a positive since it gives people a reason not to hoard cash, which keeps money flowing in the economy as investments and consumption.
Damn, you are big on free cakes. You could be right if the printed money was given to every holder of cash in propotion. However, the printed money is given to government and thus it's a tax and a way of funding the government. This is a game where private sector loses and government gains. A tax. Also I disagree that hoarding of money is a problem, it's just a form of speculation, but let's not get into that.
The FED can keep interest rates at zero for as long as they need to. Take a look at Japan, they have massive deficits, experienced deflation and have had a zero interest rate policy for years. By the way, I'm not suggesting a 20 year policy of zero interest rates. My point is, people make a big deal out of ZIRP, when it's required if the FED is going to engage in QE. This has to occur or else the FED wouldn't be able to maintain control of any positive interest rates since excess reserves would create competition in the interbank market and decrease interest rates.
I am not familiar with Japan, but no central banks can't. As inflation raises due to artificially low interest rates (which must happen), the interest rates will have to raise. And what can the Fed do to control inflation? Raise interest rates. This is just econ 101, interest rates can not be controlled in the long run, by the central banks at least. The FED is planning to pay banks to hold their reserves - this is one way to go about decreasing inflation, but will increase the deficit. Again, no FREE CAKE! It's a deficit or inflation.
There could be various reasons why extended low interest rates are possible though, but in USA, in this situation. Not really. In fact pretty much every measure that counters inflation such as: Credit destruction, balance of payments deficit, has been already used in historically high doses.
Also, I can engage in a similar polemic: deflation is theft. For example, debts are fixed in nominal terms, so when wages and prices fall, debtors have a problem servicing their debts. People would ostensibly have to pay back their debts with a dollar having stronger purchasing power.
Yes inflation and deflation benefits different people. The difference is inflation is a tax, deflation is a tax break. There is no free lunch or taxes.
When government expands the money supply, it takes from the private sector. When it decreases money supply, it gives back to the private sector (and this must be funded with other taxes). No violation of the free lunch principle!
You on the other hand seem to be thinking government can buy anything with printig money and no one will be taxed out of anything... No, in money printing some people lose, some gain, and in addition, the private sector is a net loser. Like in all taxes. However, sometimes inflation MAY lead to more efficient economy. Which means gain for everyone. Like if wages are too high and they fall. Other taxes may lead to more efficient economy as well, they are still taxes. On the other hand, most taxes lead to less efficient economy, I think this is the case with inflation as well, most of the time.
BTW, more efficient economy doesn't always mean higher GDP, sometimes free time is valued more than production itself.
Again, so what if China unloads US Treasuries? The only way to rid themselves of dollar holdings is purchase real goods and services produced by Americans. By the way, China has increased in their purchase of Treasuries. As a matter of fact, most bond auctions are oversubscribed, meaning there's more buyers than available paper.
Well usually in auctions there are more buyers than sellers. It just depends on what price they want to pay. The highest bidder gets all. Again, I am not american, since you are a bond trader, you would probably know more. However, similar things can be said of all bubbles (e.g. people greatly overvaluing an asset).
The chinese can buy all the used goods as well. Or the existing capital. Which will just devastate the gdp even more. But the main problem is that the DOLLARS will be coming back to USA. Which can result in heavy inflation, which means FED can no longer print bunch of money and loan it to government. Government, not being able to burrow from Chinese either will go bust when that happens. Which means a lot of angry people who want their benefits. That will be to consequence of this spending and burrowing party, that should be obvious to everyone. To what degree it will happen? No one knows.
EDIT: This post only relates to inflation as monetary government created phenomenon. Which is usually root cause for rising prices. As market phenomenon inflation is NOT a tax. It would be probably better to just say "printing of money" than inflation. That is the old and still sometimes used definition though.
You're a ******* riot, I love this forum.
