Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Just the Facts, Ma'am: A Compendium of Liberal Fiction -- Ignore unavailable to you. Want to Upgrade?

To: Sully- who wrote (60950)	7/14/2007 2:26:51 PM
From: Oeconomicus	Read Replies (1) \| Respond to of 90947

"Could you explain how that is so?" No problem. Segniorage is revenue to the government from the issuance of new currency, typically in exchange for goods and services. In the US, it is less direct because the Fed issues new currency by buying treasury debt, issued to finance expenditures, on the open market, but the effect is the same - new currency in circulation in exchange for goods and services consumed by government. Segniorage is sometimes called an "inflation tax" because, theoretically, the increase in the money supply should be offset by an increase in prices, leaving output unchanged and only transferring real income from households to the government. But if the new currency does not increase the domestic money supply because it is circulating as currency in foreign markets, then there should be no corresponding increase in domestic prices and thus no "inflation tax" on US households. The tax is effectively paid by foreigners. In addition, since currency does not bear interest, foreigners holding US currency abroad (instead of lending it back to us by buying US debt) are effectively making us an interest free loan. But my main point was that above.