> So, what you are saying is that government deficits are inflationary because they add money to the economy, but, on the other hand, government surplus don't retire money from the economy?
Honestly I don't know what point you're trying to make, or what deficits or surpluses have to do with anything. A deficit or surplus is merely the delta between total revenues and an arbitrarily defined budget.
Inflation is caused by additional dollars chasing the same number of goods. Printing money does not create goods and services - it merely decreases the value of each dollar relative to everything else. If I had a machine that could create an unlimited amount of gold at zero cost, the price of gold would approach zero if I made and sold enough of it. I don't know why you would think dollars would be any different.
> Yes, but the assets the Fed buy (when practicing QE) are in the accounts of the commercial banks in the Fed. After buying them, those assets are not there anymore, and, instead there is money (1). And money is basically a government bond that pay 0% interest.
Yes, the bank exchanges an asset (like a treasury) in exchange for reserves (base money). The question you need to ask yourself is, where did those reserves come from? Another question you need to ask is, when Fed engages in QE, why does the monetary base increase?
Honestly I don't know what point you're trying to make, or what deficits or surpluses have to do with anything. A deficit or surplus is merely the delta between total revenues and an arbitrarily defined budget.
Inflation is caused by additional dollars chasing the same number of goods. Printing money does not create goods and services - it merely decreases the value of each dollar relative to everything else. If I had a machine that could create an unlimited amount of gold at zero cost, the price of gold would approach zero if I made and sold enough of it. I don't know why you would think dollars would be any different.
> Yes, but the assets the Fed buy (when practicing QE) are in the accounts of the commercial banks in the Fed. After buying them, those assets are not there anymore, and, instead there is money (1). And money is basically a government bond that pay 0% interest.
Yes, the bank exchanges an asset (like a treasury) in exchange for reserves (base money). The question you need to ask yourself is, where did those reserves come from? Another question you need to ask is, when Fed engages in QE, why does the monetary base increase?