Re:How Fake Money Saved Brazil
by bd_at_rivenhill on Monday October 04, 2010 @07:57PM
(#1758069)
The government could do things like building roads, but they are usually just using that extra paper to pay off their debts, which makes investors demand a higher interest rate to hold the debt, which leads to a vicious cycle. Inflation is caused by the speed of money creation exceeding the speed of creation of real value, and the banking sector is not the only actor in the money creation process.
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That was the problem in Brazil, money was created not to invest but to pay existing debt.
Not really. Brazil's inflation had an extra factor helping it: lots of prices (as well as salaries) were automatically revalued by "triggers". The plan wouldn't have worked if the government hadn't also dropped all these mechanisms.