Purpose of Monetary Inflation

[Jcrew]

If the rate of inflation remains steady, I don't think it screws anyone except those people who don't use banks. Rising inflation rates screws fixed-interest lenders and help fix-interest borrowers while descending rates the screwage is reverse. In practice, the higher the inflation rate, the more volatile it is and more costs are sunk for hedging purposes in which case would screw everyone overall.

[notluck]

There is a technically name of taxation through inflaton. I could not find it but i remeber it starts with soveriegage.... Something like that.

[Brainwalter]

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If the rate of inflation remains steady, I don't think it screws anyone except those people who don't use banks.

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This is just not true. Someone has to be holding all the dollars at every point in time, and whoever is holding them is getting screwed. Look at it this way, they print and spend a lot of new money every year. There's no actual value created in this manner, so the value to pay for the goods and services the new money buys has to come from somewhere. It comes from the reduced purchasing power of the holders of the existing currency. And I'll give you a clue: The ones getting screwed are not the bankers.

Notluck, the word you're looking for is seignorage.

[Jcrew]

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This is just not true. Someone has to be holding all the dollars at every point in time, and whoever is holding them is getting screwed.

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This is true if the real rate of interest is negative. But under most scenarios, the holder of dollars do not have their purchasing powers debased.

[pvn]

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to add a little more to the quote from Bernanke, the reason having a nominal interest rate of zero is bad is that the central bank can no longer lower interest rates to stimulate the economy. that takes away one of the tools used to smooth the business cycle and could result in prolonged recessions.

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Why do you think the "business cycle" needs to be "smoothed out" in the first place?

[mattnxtc]

steady growth is much preferred to big jumps and loses

[pvn]

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steady growth is much preferred to big jumps and loses

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I'm asking why it's "unsmooth", not why smooth is preferable.

[Bob Moss]

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There is a technically name of taxation through inflaton. I could not find it but i remeber it starts with soveriegage.... Something like that.

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The term is Seigniorage

[Brainwalter]

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[ QUOTE ]
This is just not true. Someone has to be holding all the dollars at every point in time, and whoever is holding them is getting screwed.

[/ QUOTE ]

This is true if the real rate of interest is negative. But under most scenarios, the holder of dollars do not have their purchasing powers debased.

[/ QUOTE ]

Inflation doesn't reduce purchasing power of existing dollars? That's a new one. The actual paper dollars always exist somewhere, and someone is in current possession of them. Whoever is holding the paper dollars loses purchasing power, and this isn't just "people that don't use banks".

You tell me then. The Fed makes a bunch of new hundred-dollar bills and they get spent on a bunch of goods and services. Someone just got something for nothing, but there's no such thing as something for nothing. Someone, somewhere, is paying for it. Who is that?

[LinusKS]

The Fed has to increase the money supply, doesn't it - just to keep up the economy?

Suppose they grew it just fast enough to produce 0% inflation. Who would they be stealing from then?

Besides, I thought it was banks that increased the money supply, not the Fed.