But in order to sell promises and get real goods, you need promises to sell. Promises are expectation of future goods. If you don't uphold those, you'll have to stop selling promises. This makes it harder to get the real goods you want, since you can no longer just offer promises and then pay them back.
Promises are better—that is, you can trade them for more—the more trustworthy you are. Being more profligate with your promises than you can afford tanks the value of your promises and makes it harder to keep getting those real goods from them.
Worst case you just inflate the pain away.
This is precisely where the problem lies. Yes, you can always just inflate it away. The problem is that this has harmful effects. Namely, a change in trade balance. A high inflation rate will mean nobody wants their wealth in dollars, worldwide. A lot of dollars are overseas. For the past while, we've been able to get more stuff from importing than we export, because everyone wants dollars. This is great. Just now we're at a spot where if that changes, suddenly the economy will be a lot worse, as everyone tries to shed dollars, making everything more expensive in dollars, beyond just the direct effect of the increased money supply on inflation. Because the whole US runs on dollars, dollars going down relative to the world economy beyond just the direct effect of inflation is bad. It becomes harder to buy anything, especially things made overseas.
A lot of countries have tried "inflate the pain away." How did it work for them? (Hint: pretty disastrously)
Yes, they didn't control the world's reserve currency. But give the US dollar enough inflation, and it will no longer be the world's reserve currency, as everyone drops it.
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But in order to sell promises and get real goods, you need promises to sell. Promises are expectation of future goods. If you don't uphold those, you'll have to stop selling promises. This makes it harder to get the real goods you want, since you can no longer just offer promises and then pay them back.
Promises are better—that is, you can trade them for more—the more trustworthy you are. Being more profligate with your promises than you can afford tanks the value of your promises and makes it harder to keep getting those real goods from them.
This is precisely where the problem lies. Yes, you can always just inflate it away. The problem is that this has harmful effects. Namely, a change in trade balance. A high inflation rate will mean nobody wants their wealth in dollars, worldwide. A lot of dollars are overseas. For the past while, we've been able to get more stuff from importing than we export, because everyone wants dollars. This is great. Just now we're at a spot where if that changes, suddenly the economy will be a lot worse, as everyone tries to shed dollars, making everything more expensive in dollars, beyond just the direct effect of the increased money supply on inflation. Because the whole US runs on dollars, dollars going down relative to the world economy beyond just the direct effect of inflation is bad. It becomes harder to buy anything, especially things made overseas.
A lot of countries have tried "inflate the pain away." How did it work for them? (Hint: pretty disastrously)
Yes, they didn't control the world's reserve currency. But give the US dollar enough inflation, and it will no longer be the world's reserve currency, as everyone drops it.
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