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Comment by phkahler | Hacker News Reader

Taxes fund the government. Bonds are just a way to avoid managing a budget.

Na, taxes create demand for currency, which maintains the currency's value. Then you just print or borrow the currency into existence to fund the government.

People are forced to acquire the currency to pay their taxes or risk being assaulted by the violence of state and dispossessed of a lot of their stuff and/or freedom.

This is complete bullshit. There’s no model with explanatory power.

"Fiscal Theory of Money" is a nice story. Economists often tell worse stories about money (Graeber).

Fiscal Theory of Price Level seems to be inspired by Fiscal Theory of Money.

"The literature on the fiscal theory of the price level (FTPL) integrates discussion of monetary and fiscal policy, recognizing that fiscal policy can be a determinant, or even the sole determinant, of the price level"

Christopher A Sims: Paper Money

https://scholar.google.com/citations?view_op=view_citation&h...

https://en.wikipedia.org/wiki/Christopher_A._Sims

Is this MMT? There was a flurry of articles about it a couple of years ago, airily explaining that it’s fine for all the governments to print unlimited money now because they can just curb any inflation by raising taxes.

Ignoring the fact that elected governments do not, of course, do that.

Ok so you're saying it's bad that they fund the government. But given the large budget deficit we have, the statement is true.

government doesn't need taxes to fund anything, it can just create money and sell bonds. Taxes are just for steering money flows

Inflation would like a word.

Speaking from my German perspective. Our (European) central bank printed central bank money like crazy the last 10 years, and apparently it was not a problem. Prices only shot up once there were supply shocks due to Covid and Putin. And sure enough, the supply shocks are slowly waning, and hence YoY inflation rates are also rapidly declining.

Yet everyone keeps talking about how the money supply is causing inflation, even though there is no plausible direct connection [1] between the amount of money in some bank account somewhere and consumer prices. The bakery down the street does not look at federal reserve rates when figuring out their bread prices.

[1] I'm guessing that someone will be able to explain this to me. But keep in mind that your explanation should cover how we could have over a decade of near-zero interest rates and the respective money supply inflation without seeing any significant consumer price inflation.

At a very basic level, more monies in circulation means each individual money is worth less than before. If each individual money is worth less than before, you need more monies to buy something. This is fine if you have more monies on hand to compensate, but generally this isn't the case for individual persons.

Thus, you have inflation: The price of goods inflate(!) because the value of monies drops inversely to the monies in circulation.

Your model is missing money velocity.

Creating money does not automatically cause it to circulate, as the ECB and others have demonstrated between 2008 and 2022.

What part of "very basic" do you not understand?

If we want to get deep into the thickets of finances we absolutely can, but that's not what I'm here for.

It's not accurate to say the EU has been printing money like crazy for 10 years, when for most of that time, the money printing was minor compared to 2020-2022.

Europe, much like the US, was printing money, at a fairly steady rate from 2008 to 2020, at which point they doubled the money supply in a little over a year. That is, they printed more money in ~18 months then they had since the EU was formed.

https://fred.stlouisfed.org/series/ECBASSETSW

>> government doesn't need taxes to fund anything, it can just create money and sell bonds.

This is a nice fiction a lot of people spout. The consequences of that are inflation or default. Inflation is very unpopular but defaulting ends the game because investors won't buy the bonds after that. There are consequences to ignoring debt.

My country has an 8% budget surplus before interest payments, and 2% deficit after. What would be the consequences of ignoring/defaulting on that debt exactly? Seeing as how it's already doing fine with an 8% surplus.

I can think of other (political) consequences, but not economical per se, if you assume that a loan has a risk of default priced into its interest rate.

The obvious consequence of defaulting in your debt is that it becomes difficult to go to the capital markets in the future if you need to.

Probably more politically disastrous is that if the debt is denominated in the domestic currency, it’s likely that a substantial portion of the bond holders are domestic and they will not be happy about having their wealth confiscated.

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