| > Could the Fed just not use inflation as a form of taxes in general? In some sense, they already do that. But it's more complicated than it first appears. First, most of the money the Fed+government makes from issuing money comes from seigniorage, not from inflation. Simplified a bit, seigniorage just means that the cash people hold in their wallets (and bank accounts) took the government pennies to print, but the people offered real goods and services in exchange to acquire it. Second, higher inflation makes people hold less cash in real terms. A simple illustration: when Germany had hyperinflation in the early 1920s, some people might have carried cash by the wheelbarrow, but even a whole wheelbarrow would only be worth eg a few apples and potatoes. In contemporary Germany with a stable currency, it's not too unusual to carry enough cash in a slim wallet to be able to afford wheelbarrows full of apples and potatoes. So if the government+central bank want to maximize how much real benefit they get from printing money, they can't just crank up inflation. In fact, lower inflation is probably better, if you want to maximize this. |