[BostonCard]

I had a lengthy discussion with a friend yesterday on the topic of debt, financial markets, and taxes. We basically concluded that central banks will always do whatever is necessary to save the system. He observed that if central banks will always print money to buy government debt, why the hell should we pay taxes? They de-value our currency holdings as it is, so why should we let them take our money also

Sounds like you guys discovered modern monetary theory.

And the answer is that the trick works as long as prices are stable.  But it stops working as soon as inflation kicks up, because if central banks print ever increasing amounts of money to fund a government whose costs are ever increasing due to inflation, you get an unbreakable cycle and a collapse in confidence that prices will be stable.

BC

[BostonCard]

I had a lengthy discussion with a friend yesterday on the topic of debt, financial markets, and taxes. We basically concluded that central banks will always do whatever is necessary to save the system. He observed that if central banks will always print money to buy government debt, why the hell should we pay taxes? They de-value our currency holdings as it is, so why should we let them take our money also

Sounds like you guys discovered modern monetary theory.

And the answer is that the trick works as long as prices are stable.  But it stops working as soon as inflation kicks up, because if central banks print ever increasing amounts of money to fund a government whose costs are ever increasing due to inflation, you get an unbreakable cycle and a collapse in confidence that prices will be stable.

BC