We don’t need tax under the current system

sin_city

As many countries are running deficits every year to finance is there really a need to tax when the money needed can just be printed/borrowed from the central banks?

I do not agree at all with what is happening but does anyone have thoughts on this?

Cookie_Monster

there's a slight difference in getting 45bn in tax and borrowing 5bn to simply borrowing 50bn, wouldn't you think?

sin_city

Cookie_Monster wrote: »

there's a slight difference in getting 45bn in tax and borrowing 5bn to simply borrowing 50bn, wouldn't you think?

Maybe, I’m not sure. Inflation is a hidden tax. So instead of having 2% inflation rate due to borrowing with tax…why not have a 5% inflation rate where no one pays tax.
It’s not like the borrowed debt is gradually being paid down. The supply of money is increasing every year, right?

SupaNova2

sin_city wrote: »

Maybe, I’m not sure. Inflation is a hidden tax. So instead of having 2% inflation rate due to borrowing with tax…why not have a 5% inflation rate where no one pays tax.
It’s not like the borrowed debt is gradually being paid down. The supply of money is increasing every year, right?

It would hide the cost of government and make it easy for government to increase spending, not a good thing in my mind. Also it would be harder to see who is taxed, the tax would likely fall on the least financially educated and the poor who have the least knowledge and means to avoid the affects of inflation. That and having higher rates of inflation is playing with fire.

Zubeneschamali

sin_city wrote: »

As many countries are running deficits every year to finance is there really a need to tax when the money needed can just be printed/borrowed from the central banks?

If you think of a country with its own central bank and currency, then yes.

In theory, the UK could stop collecting taxes, and simply print more money for government spending every year. The total sterling money supply is about 2000 billion. Government spending is about 700 billion. Printing new money for govt. spending would give about 30% inflation per year (all other things being equal).

The effect would be like running the government with just one huge tax on savings.

But much worse things would happen in practice - with everyone worldwide dumping Sterling and refusing to accept Sterling in payment, and anyone with savings/investments in the UK cashing out and investing in euros or dollars. That 30% inflation would get much, much worse really fast.

sin_city

Yes, i understand...I'm just saying people might get used to it. What amount of money is being printed in the US at the moment?

sin_city

Yes, i understand...I'm just saying people might get used to it. What amount of money is being printed in the US at the moment?

SupaNova2

There is a book by Peter Bernholz on hyperinflation's that is worth a read. A scenario as outlined by Zubeneschamali would be very likely. I don't think people want to get used to hyperinflation.

Pawwed Rig

Money is essentially worthless. Unless there is real wealth to back up the printed value of the money then the currency will collapse. Like why does the EU not just print enough money to pay all the debts. Sure while they're at it print enough to pay the third world debts also. Money is only as valuable as the perception people have of it. If the suppliers of goods and services in UK decided they would no longer accept sterling then the currency would soon collapse.
It is what the global economy is based on (for better or worse) and tinkering with one of the major currencies in that way would be catastrophic on a global scale. On a local scale (say Zimbabwe) the catastrophe is localised as their currency does not reach as far.

sin_city

Pawwed Rig wrote: »

Like why does the EU not just print enough money to pay all the debts.

You don't understand the system we have.

Our currency is debt. If the debt was paid off, there would be no currency in existence.

I’m making the point that we are already running a system that relies on money printing.

I’m not a supporter of it. If 2% inflation is good. Why is 1% bad ….why is 5% bad?
Total rubbish to me.

Pawwed Rig

sin_city wrote: »

You don't understand the system we have.

I think you missed the point of my post. The question was rhetorical

sarumite

sin_city wrote: »

You don't understand the system we have.

Our currency is debt. If the debt was paid off, there would be no currency in existence.

I’m making the point that we are already running a system that relies on money printing.

I’m not a supporter of it. If 2% inflation is good. Why is 1% bad ….why is 5% bad?
Total rubbish to me.

The 2% is a target inflation. Since inflation rates and CB interest rates are invariably intertwined, having a target inflation rate gives some predictability regarding interest rates which in theory allows for better economic planning. (so as an example, if inflation rates are above the target rate, the CB will look to increasing the interest rate in a hope that this brings down the inflation rate.)

Geuze

sin_city wrote: »

You don't understand the system we have.

Our currency is debt. If the debt was paid off, there would be no currency in existence.

I’m making the point that we are already running a system that relies on money printing.

I’m not a supporter of it. If 2% inflation is good. Why is 1% bad ….why is 5% bad?
Total rubbish to me.

I don't get you.

The cash in my pocket is my asset. It is a liability of the Central Bank.

My deposit in the bank is my asset, and a liability of the bank.

What do you mean by "currency is debt"?

The currency in my wallet is a liability of the central bank.

Cool Mo D

Geuze wrote: »

I don't get you.

The cash in my pocket is my asset. It is a liability of the Central Bank.

My deposit in the bank is my asset, and a liability of the bank.

What do you mean by "currency is debt"?

The currency in my wallet is a liability of the central bank.

In what way is it a liability of the Central Bank? They don't owe you anything for it, and you can't go to them and claim anything in exchange for it. This was once possible in the era of the gold standard, but those days are long gone.

The reason money is "worth" anything is because of the belief that it will remain stable and valuable in the future. When people lose faith in that, you get hyperinflation and collapse.

Geuze

Cool Mo D wrote: »

In what way is it a liability of the Central Bank? They don't owe you anything for it, and you can't go to them and claim anything in exchange for it. This was once possible in the era of the gold standard, but those days are long gone.

The reason money is "worth" anything is because of the belief that it will remain stable and valuable in the future. When people lose faith in that, you get hyperinflation and collapse.

Ok, I can't go and demand gold/silver in exchange for my currency, no.

OK, it is based on faith/confidence, not backed fully by gold.

But currency is still a liability on the CB balance sheet.

See here:

http://www.centralbank.ie/polstats/stats/cmab/Documents/2014m03_ie_monthly_statistics.pdf

See Table A2.

carpejugulum

Ask Zimbabwe how it worked out for them, OP.

Frank Lee Midere

Cool Mo D wrote: »

In what way is it a liability of the Central Bank? They don't owe you anything for it, and you can't go to them and claim anything in exchange for it. This was once possible in the era of the gold standard, but those days are long gone.

The reason money is "worth" anything is because of the belief that it will remain stable and valuable in the future. When people lose faith in that, you get hyperinflation and collapse.

No. You only get hyperinflation if lots of money is printed.

sin_city

Frank Lee Midere wrote: »

No. You only get hyperinflation if lots of money is printed.

Grand then...hope everyone is prepared.

The 2% inflation target has no basis...If it did, someone could explain why 2% is good and 1% and 5% are bad.

andrew

Printing money to fund government expenditure leads to inflation. See: every instance of hyperinflation, ever. This is why the ECB is forbidden from financing government expenditure through 'printing' money.

Why is high inflation bad? It erodes savings, to the extent that inflation > the interest rate on savings. It erodes the value of money in your pocket. At high levels, it leads to absurdly big inefficiencies and transaction costs; wheelbarrows of cash, spending time trying to figure out what price to charge etc.

2% is a general 'good' inflation target - it's hard to say what the perfect level is - when does orange become red? The idea is that 1% is too low to allow for much room to avoid deflation. 5% is too high because it's associated with more uncertainty - if inflation is at 5%, it usually doesn't stay at 5%. Here's a short press release which has some more information.

sin_city

andrew wrote: »

2% is a general 'good' inflation target - it's hard to say what the perfect level is - when does orange become red? The idea is that 1% is too low to allow for much room to avoid deflation. 5% is too high because it's associated with more uncertainty - if inflation is at 5%, it usually doesn't stay at 5%. Here's a short press release which has some more information.

General good target? Hard to say? I asked for the basis on 2% being better than 1% and 5% and this is what I get?

Yes, I understand what a central bank and a government are going to say but I'd like to see the basis for it.

If I'm a consumer I prefer prices to go down so I can buy more stuff. People that are already struggling can do without increasing costs in food and bills.

By the way inflation is the increasing of the money supply...rising prices are a result of inflation.

Pawwed Rig

sin_city wrote: »

If I'm a consumer I prefer prices to go down so I can buy more stuff. People that are already struggling can do without increasing costs in food and bills.

By the way inflation is the increasing of the money supply...rising prices are a result of inflation.

Inflation is good for those with debt though as (in a functioning economy) wage rises will generally match inflation negating the effect of raises in food and bills but your debt (mortgage) gets relatively cheaper as the years pass.

andrew

sin_city wrote: »

General good target? Hard to say? I asked for the basis on 2% being better than 1% and 5% and this is what I get?

Yeah, that's what you get. That and a link to a document with a more detailed explanation. What more do you want, finger puppets?

If I'm a consumer I prefer prices to go down so I can buy more stuff. People that are already struggling can do without increasing costs in food and bills.

If you're a consumer. Too bad Nobody is just a consumer. Everyone has assets and liabilities, income and expenditure. In light of this, what people 'prefer' is a low and stable rate of inflation.

By the way inflation is the increasing of the money supply...rising prices are a result of inflation.

You're mostly/semantically wrong there. Check the wikipedia page for 'inflation.'

SupaNova2

sin_city wrote: »

By the way inflation is the increasing of the money supply...rising prices are a result of inflation.

That used to be the widely held definition. If you see the term inflation used on its own it is more often than not used to describe price inflation measured by a price index. You are of course right to say price inflation is primarily caused by money supply inflation.

I would not expect to find any golden answer to why a 2% target is better than a 1% or 3% target. A primary reason for having a target in the first place though is so you don't unfairly or arbitrarily favour creditor or debtor. You want wealth to concentrate in the hands of people making wise investment and borrowing decisions, not debtors at the hands of bad monetary policy.

meathstevie

sin_city wrote: »

You don't understand the system we have.

Our currency is debt. If the debt was paid off, there would be no currency in existence.

I’m making the point that we are already running a system that relies on money printing.

I’m not a supporter of it. If 2% inflation is good. Why is 1% bad ….why is 5% bad?
Total rubbish to me.

I don't want to be pinned down on a percentage but the just print the money lark has worked very well in Europe at some stage; that well that the Germans have been left with an atavistic fear of runaway inflation.

It's one thing that some tinpot dictator in an insignificant small third world economy loves his own picture that much that he can't have enough little pieces of paper with his mug shot printed to satisfy his ego but any significant Western European country going down that road will spark a massive crisis.

sin_city

Pawwed Rig wrote: »

Inflation is good for those with debt though as (in a functioning economy) wage rises will generally match inflation negating the effect of raises in food and bills but your debt (mortgage) gets relatively cheaper as the years pass.

Like the way the wages of CEOs rise with inflation and like the way the purchasing power of say the workers in the USA has been in constant decline since the 1960s? Good like that?

andrew wrote: »

Yeah, that's what you get. That and a link to a document with a more detailed explanation. What more do you want, finger puppets?

You provided a link from the central bank of Canada...Can an explanation be any more biased than that source?

andrew wrote: »

If you're a consumer. Too bad Nobody is just a consumer. Everyone has assets and liabilities, income and expenditure. In light of this, what people 'prefer' is a low and stable rate of inflation.

I disagree...I think people prefer prices to go down. Cheaper things mean me can buy more.

andrew wrote: »

You're mostly/semantically wrong there. Check the wikipedia page for 'inflation.'

I prefer to listen to Von mises rather and other Austrian economists rather than wikipedia.

SupaNova2 wrote: »

I would not expect to find any golden answer to why a 2% target is better than a 1% or 3% target. A primary reason for having a target in the first place though is so you don't unfairly or arbitrarily favour creditor or debtor. You want wealth to concentrate in the hands of people making wise investment and borrowing decisions, not debtors at the hands of bad monetary policy.

If you believe in the free market then we should have competing currencies, and I don't mean euro and dollar...I mean actual different currencies that could be used to pay taxes rather than the central bank monopoly.
It would be interesting to see how much inflation they would allow if people decided to use non central bank currencies.

Ever wonder why gold was confiscated in the US in 1933? Something that holds it value.

The price of gold and silver may change but it value is pretty constant.

sin_city

meathstevie wrote: »

I don't want to be pinned down on a percentage but the just print the money lark has worked very well in Europe at some stage; that well that the Germans have been left with an atavistic fear of runaway inflation.

It's one thing that some tinpot dictator in an insignificant small third world economy loves his own picture that much that he can't have enough little pieces of paper with his mug shot printed to satisfy his ego but any significant Western European country going down that road will spark a massive crisis.

According to many this crisis is already in the making...There are more dollars outside the US than inside the US.

What do you think will happen when the world rejects the US dollar and they start sending them home?

Imagine a situation where Russia and China have a trade deal for say 30 years and they choose not to use the US dollar....:eek:

Imagine huge amounts of US Treasuries getting dumped by Russia and then Belguim supposedly spending nearly 90% of its GDP on US bonds....yep, it's all good in dollar land.

Going the same way all fiat currencies went in my opinion

andrew

sin_city wrote: »

You provided a link from the central bank of Canada...Can an explanation be any more biased than that source?

So you want to know why Central Banks target a 2% level of inflation. But you don't want the explanation for why they do to come from the people who are literally responsible for setting that target and defining that why. Right. In any case, the argument for 'why' should and does stand by itself, independent of source.

I disagree...I think people prefer prices to go down. Cheaper things mean me can buy more. ...I prefer to listen to Von mises rather and other Austrian economists rather than wikipedia.

I assumed this was a discussion based in facts, obviously not.

antoobrien

sin_city wrote: »

The 2% inflation target has no basis...If it did, someone could explain why 2% is good and 1% and 5% are bad.

Do you understand the dangers of deflation?

It can be summarized as the fear that as prices drop, consumers hold onto their money to get better value, which leads to further prices drops. Which is grand, if only prices are affected, but they are not, as the prices of items are linked to how much they cost to make - labour being a major component of this - meaning lower wages, hence less money to spend. And we're back to people holding onto money so as to get better value.

The fear of inflation of less than 1% is that people will slow/stop spending, hoping for better value - leading to the deflationary cycle described earlier.

As for 5% inflation being bad that should be obvious, prices going up too fast forcing wages up, feeding into further price changes. For an example of this, just look at the celtic tiger years, prices went up too quick and lead to bubbles.

Aiming for 2% is intended to give stability, we know prices will rise, but they will do so gradually so that we shouldn't get into race conditions that drive prices up/down..

I suggest you do some reading up on European monetary policy and
Price stability

sin_city wrote: »

You provided a link from the central bank of Canada...Can an explanation be any more biased than that source?

You'd do well to listen to the Canadians, they're one of the best regulated banking systems in the world and are quietly buying up US banks, helping to shore up the US banking system.

SupaNova2

sin_city wrote: »

If you believe in the free market then we should have competing currencies, and I don't mean euro and dollar...I mean actual different currencies that could be used to pay taxes rather than the central bank monopoly.
It would be interesting to see how much inflation they would allow if people decided to use non central bank currencies.

Of course I would like to see competing currencies free of central banks. But that is for a different thread.

Ever wonder why gold was confiscated in the US in 1933? Something that holds it value.

It was done to ease and eliminate bank runs. Gold still holds value, it's the main reason I own a very humble amount.

The price of gold and silver may change but it value is pretty constant.

Not necessarily, the amount of gold it takes to buy a computer today is a lot less than 20 years ago. The amount of gold it takes to buy any other commodity also varies wildly.

SupaNova2

Belguim supposedly spending nearly 90% of its GDP on US bonds...

Where did you get that from?

sin_city

SupaNova2 wrote: »

Where did you get that from?

http://www.treasury.gov/ticdata/Publish/mfhhis01.txt

http://www.guerillastocktrading.com/stock-market/federal-reserve-bond-mystery-emerges-belgium-spends-90-of-gdp-on-us-bonds/

http://www.paulcraigroberts.org/2014/05/12/fed-great-deceiver-paul-craig-roberts/

SupaNova2

sin_city wrote: »

http://www.treasury.gov/ticdata/Publish/mfhhis01.txt

Read the fine print:

The data in this table include foreign holdings of U.S. Treasury marketable and non-marketable bills, bonds, and notes reported monthly under the Treasury International Capital (TIC) reporting system. The data are collected primarily from U.S.-based custodians. Since U.S. securities held in overseas custody accounts may not be attributed to the actual owners, the data may not provide a precise accounting of individual country ownership of Treasury securities.

http://www.guerillastocktrading.com/stock-market/federal-reserve-bond-mystery-emerges-belgium-spends-90-of-gdp-on-us-bonds/

Silly and misleading headline.

sin_city

SupaNova2 wrote: »

Read the fine print:

Yes??

SupaNova2 wrote: »

Silly and misleading headline.

I've read it...Did you check out Paul Craig Robert's site?

You can also look up what Jim Rickard says about it.

What is misleading?

Sorry you might be right....Bankers and government....yeah all good....I mean Belgium spending this amount on US bonds is all in order...all good

SupaNova2

sin_city wrote: »

Sorry you might be right....Bankers and government....yeah all good....I mean Belgium spending this amount on US bonds is all in order...all good

Hmm both of your articles argue that Belgium is not spending 90% of gdp on US bonds, the 90% figure they got from data that "may not provide a precise accounting of individual country ownership of Treasury securities".

sin_city

SupaNova2 wrote: »

Hmm both of your articles argue that Belgium is not spending 90% of gdp on US bonds, the 90% figure they got from data that "may not provide a precise accounting of individual country ownership of Treasury securities".

Of course Belgium isn't spending 90% of it's GDP on US bonds.

That's the point I am making.

It's most likely the Fed laundering money through the ECB which we found out exists through Dodd-Frank.

Anyway, back on the topic somewhat...do you think the US is approaching high or even hyperinflation?

SupaNova2

sin_city wrote: »

do you think the US is approaching high or even hyperinflation?

I think hyperinflation is a possibility.

I recommend Peter Bernholz's book on hyperinflation.