Well, its kind of a chicken and egg situation. I agree that moneatry (and price) inflation incentivizes more debt. However, the fact is that the mechanism by which monetary inflation happens is generally by creating debt. So if you were to pin whether the egg or the chicken came first, the answer would be that they happened at the same time.
> Inflation is disliked by banks
Mmm, no. Banks gain seigniorage from monetary inflation. So no they don't dislike it.
> Inflation aids creditors.
Devaluation of the currency aids creditors. However, monetary inflation does more than just currency devaluation. It also reallocates weath (seigniorage) and manipulates the market. Banks can simply loan out whatever money they want, so an inflating currency doesn't matter to them. They take that inflation into account already. What does matter is unexpected inflation. That's why uproar happens when inflation rates change significantly (either high inflation or deflation).
> Direct injection to consumers ("helicopter drops") would be least injurious to inequality
I agree. Still economically harmful, but less harmful than traditional seigniorage.
The problem with debt is that it is a manifestation of an underlying contradiction. One or more of:
- The expectation that those not paid sufficiently to survive can. E.g., increasing wealth inequality.
- That past obligations take precedence over current survival.
- Past consumption patterns or expectations of future consumption exceeding actual production capacities.
At some point, something has to give. Debt can be inflated away, debt can be discharged (bankruptcy, jubilee, expiry, default). Or the social order under which the debts are recognised can itself be dissolved (revolution).
Your #2 is false. Seigniorage is gain on minting money, not inflation. I have no idea what term you're confusing it with.
Monetary inflation does not do that. In fact it does the opposite: it reduces effective income and wealth of the poorest sectors of society (and the middle class as well). A sudden unexpected increase in the rate of inflation does temporarily increase quantity demanded because more money is around, and this can create a little additional additional economic activity. But this is a very temporary effect, and when the rate of inflation comes back down, the reverse happens.
I think I mostly agree with your take on debt. Something has to give.
> Seigniorage is gain on minting money, not inflation.
Minting money (ie monetary inflation) leads to price inflation. So they go hand in hand. You can't have one without the other. The seigniorage gained by banks is worth a lot more than the devaluation of their bonds.
- Increases income and wealth relative to debt.
- Decreases the real value of debt, and the costs of payments (both interest and principle) on it.
- Increases net spending power relative to the rest of the economy. (I'm presuming a net wealth transfer effect here.)
Even in the absence of a net wealth transfer, that is, where money is injected generally to the economy rather than specifically to the poorest, the net reduction in cost of debt is a benefit.
You are still useing the word seigniorage incorrectly.
Sure.
> Decreases the real value of debt
Yes. A consequence of the above.
> Increases net spending power relative to the rest of the economy.
This isn't correct. What do you mean by "spending power"? Monetary inflation doesn't change the amount of physical resources in the world, therefore spending power cannot increase. Unless you mean for the segment of people that receive the money. Then sure, but what's your point?
This is all moot tho because monetary inflation is not distributed to the poorest people.
> the net reduction in cost of debt is a benefit
It is not, because lenders take inflation into account and raise rates to match. Only unexpected inflation is a benefit to lenders.
> You are still useing the word seigniorage incorrectly.
Simply asserting that is not convincing.
If the relative proportion paid to debt service decreases, the relative proportion paid to real goods and services increases.
Debt-dominated economies have regressive wealth allocations.
Debt instruments are not generally inflation-indexed. If there's a belief that there will be inflation, the interest rate may be increased, however that's not always the case. Regardless, creditors even if they have already priced in inflation will lobby for low-inflation policies as this increases the return on their assets (that is, debt).
How monetary policy allocates funds is in fact a policy question, and is determined by policy. There is no Divine Law of Economics which dictates one allocation over another.
You've been asserting without citation as well, just for the record. The my claim is trivially verified:
seignorage. 1. Something claimed or taken by virtue of sovereign prerogative; specifically, a charge or toll deducted from bullion brought to a mint to be coined; the difference between the cost of a mass of bullion and the value as money of the pieces coined from it. (1913 Webster)
http://dict.org/bin/Dict?Form=Dict2&Database=gcide&Query=Sei...
Seigniorage is the difference between the face value of money, such as a $10 bill or a quarter coin, and the cost to produce it. In other words, the economic cost of producing a currency within a given economy or country is lower than the actual exchange value, which generally accrues to governments who mint the money.
https://www.investopedia.com/search/?search-terms=seigniorag...
Again: the words you're using don't mean what you're asserting they mean.
I still don't know what this means. What is "spending on debt"? Interest payments? Why are you calling amount spent "spending power"? Spending power evokes the idea of potential, not actual spending. Your terminology is confusing.
> the interest rate may be increased, however that's not always the case.
When the price inflation rate is relatively stable, it will automatically be accounted for via the normal price system (ie not by conscious up pricing).
> Regardless, creditors even if they have already priced in inflation will lobby for low-inflation policies as this increases the return on their assets (that is, debt).
Ok. Well this isn't true when the creditors are primarily banks reciving seigniorge benefits.
> The my claim is trivially verified
Your claim that I'm using seigniorage wrong? The definitions you're quoting about seigniorage agree with the way I'm using the word. I don't know why you think I'm using it wrong.
Net spending == consumption + debt payments
Reduce debt through inflation, consumption increases a share of total spending. Wealth of creditors increases.
We seem to be inhabiting different universes on the remainder of the discussion.
Why is this a useful definition of net spending? What about business spending? What about government spending? Do you include business debt payments in "debt payments"? I also don't know why you think increasing consumption as a total share of spending would increase the wealth of creditors.
I get that you're trying to show how inflation leads to debt reduction. It is true that unexpected and sudden increases in inflation lead to debt reduction, but its only one very small piece of the puzzle. Unexpected and sudden inflation is quite rare in our current economic environment.
Inflation is disliked by banks, as it reduces the value of any currency-denominated assets (loans, debt, insurance premiums, etc.).
Inflation aids creditors.
The question of how money is injected into the financial system is independent of whether or not inflation occurs. Direct injection to consumers ("helicopter drops") would be least injurious to inequality. The fact that the financial sector engineers monetary supply increases to be in their favour is a problem of the wealth-power connection.