[throwaway123156]

I suppose it would lead to inflation and as long as the inflation is controlled, that's doable.

Effectively, the government is being funded by all dollar holders at that point. It's a wealth tax of sorts imposed on those who hold their wealth in dollars.

The idea would be that the government is being funded by the fact that $100 today, is worth only about $90 last year, and that loss in value is what's funding the government.

[tempestn]

This might explain why the idea is more popular on one side of the political spectrum. What's interesting though is that thus far it doesn't seem like the expected inflation has been happening in the US, despite significant deficit spending. Any idea why that might be? What I've heard is a lot of, "Current levels of deficit spending are sustainable because we're not yet seeing a resulting increase in inflation." Which makes sense. But.. what's the mechanism for that? Like, taken to an extreme, if a government did indeed stop taxing and pay for everything with deficit spending, but there wasn't inflation as a result, how would that be?

The only explanations I can think of are that 1) many other countries are also doing significant deficit spending, so all major currencies are being devalued together, and so they're not actually being devalued at all, and 2) in as much as (ie) the US currency is being devalued faster than others, there are other, strengthening factors that are counteracting this. (Such as higher interest rates.)

[henryfjordan]

I'm not an expert and expect this to have flaws but here goes:

Fiat currency is backed by value (not gold, but also not nothing like some people say). It's worth what we all collectively think it's worth and that's going to depend on the underlying assets of a nation.

Lets say there are $1T dollars floating around the economy and this year the Fed wants to print another 100bn. That's totally ok (and necessary) so long as there was that much value created this year. New factories have been built, businesses created, etc. This has created more underlying value in America and so it's ok that we print some more money. Your $1 bill still holds the same amount.

That's how I look at it at least.

[jchrisa]

So maybe the poor and middle class would be better off and the rich would foot the bill?

[patrickmcnamara]

The rich would also have the means to invest that money and not just hold cash.