Jake Anderson wrote:

> Apptech wrote:
>>>> It's well known that when governments just 'print money' arbitrarily
>>>> that the system falls apart, but I don't know how the cost gets
>>>> distributed when it is done in a controlled manner. 
>>   
>>> I think the word you're looking for is "Zimbabwe"
>>
>> No, 

Look for "Brazil" and "hyperinflation". 

>> What is not clear to me is how the resultant costs would be distributed
>> across the economy. The original recipients of the "fake" money are not
>> obviously disadvantaged as the money is just as real. If anything they
>> benefit from the business, as they would with any government purchase.
>> But, how does the cost then transfer across the society as a whole?

> I feel its a pretty fair tax with few loopholes that I can see. Rather
> than taking money out of peoples pockets you make the money in their
> pocket worth less. Provided you keep it in check (10% or so of the GNP
> of your society or something is allowed to be printed each year) the
> benefits would be immense. 

I don't think there is such a thing as controlled inflation. Once you have
regular inflation, you get indexed prices. Once you have indexed prices,
(some of) the goods and services are not traded in the original currency
anymore, but in the index. The cost of such a system is then of course
mainly paid by the ones who still have their income measured in currency,
not in indexed values. Once you have a significant portion of the economy
indexed, the government income from such a scheme is heavily reduced, and
the rate of inflation needs to be bumped up quite a few notches. At which
point, it's still more difficult to control, and probably soon out of
control.

> I'm unsure of the "border" interactions though, how investors go with
> putting money in and taking it out of your economy and vice versa
> although i suspect the money market should make most of those
> corrections for you.

Oh yes, they will. Everything in investments will be indexed (nobody will
be foolish enough to invest in something that's not indexed) -- which for
those who have enough money to be living mainly with and from indexed
values is a good deal. But it wreaks havoc with the economy. In Brazil,
there is a full generation who never learned to compare prices, to plan
with money (except for "spend it as fast as you can or invest it in an
indexed fund") -- not even the simplest things that are so second nature to
most who grew up in a more or less stable economy that they don't notice
it. The overall cost of this is /huge/.

Gerhard

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