Using Past QEs to Pay off Our National Debt
How Are They the Same?
Creating unbacked-up money devalues all existing money whether buying mortgage backed security, bonds or just giving the money to the government. They will both leave the same amount of capital in the system, however monetizing the debt leaves The US with less overall debt. Read below about how contracting the money supply does great harm. QE has to be repaid where monetizing the debt does not.
The Bad Effects
Like other forms of taxation, creating unbacked-up money creates a hidden tax of inflation.
Explaining How Contracting the Money Supply is Bad
When expansionary money policy (QE) creates inflation, the damage is done. It would be an interesting study (a very difficult study) to determine how long it takes. My belief is that the damage is started when the market believes QE will happen a year from now and there is a steady progress of damage done all the way though. Once the damage of inflation is done it is not repaired by doing more damage created by deflation.
Taxing All the Repayments Would Keep the Monetary Supply Neutral
Some could argue that taxing money would take it out of the system and I would counter that a tax does not take it out. Loans to the Fed have to be repaid, that money would be taxed and applied to the debt, and thus less money will be needed to cover the debt, creating a neutral position. Currently $17.1 Trillion needs to be lent to the US government. Money taken out of the Fed’s bond buying program will mean the same money not having to be lent to the government to cover the debt.