What effect does inflation rates have on the government?

Answer 1

The true definition of inflation is like the story I am about to tell. If there was only 1 place in the country to buy potatoes, they would be very expensive, right? On the other hand, if a potato truck was on every corner selling them, they would be cheap. Right or wrong? The same with dollar bills and in this day and age, dollars are also introduced into the economy by electronic transfer. The fed government does not control the almighty dollar. The Federal Reserve does. It is our Central Bank which is world wide also. They flood the market with excess dollars that drives down the value or worth of the dollar. The more there is of anything, the less it is worth. Then, when the dollar is worth less, it takes more to buy a given item. That is true inflation. It is not that a gallon of milk is going up, it is the value of the dollar going down and it takes more of them to pay for the same thing. Now, who benefits from this? Let's see. It is not hard to see that if the Fed Reserve floods and floods the market, even in times like these, they are doing it with dollars backed by nothing but the faith and credit of Uncle Sam. Their cost is paper and ink or an electronic check to the Federal gov or Federal Reserve Banks. And I might add they are charging 0% or a little above right now. But when times get good, look out because the Federal Reserve System will raise interest rates dramatically. They will be collecting interest on dollars that are actually worth or backed by NOTHING . Not gold or silver. If money was backed by gold or silver they could not manipulate the interest rate like they do nor print money freely at will. Look at the top of any 1 dollar, 5 dollar, etc. It reads Federal Reserve Note. Only legal because congress voted it in. It is only paper and ink backed up by nothing. It is a note only!

It is the Federal Reserve System or Central Bank that benefits from inflation but at the same time, the federal government has allowed itself to borrow any and all the money it wants from The Federal Reserve. They can walk right in and the man behind the desk simply pulls out the check book and bingo like magic there is all the money they want. And when that check or any check is deposited, it is done so in a bank that is regulated or a member of the Federal Reserve System.

And I don't think they will bounce their own checks, DO YOU? With a Central Bank, any country can go behind the backs of the people and collect more money without them knowing it and revolting.

Answer 2

One way that governments benefit from inflation is that they get an increase in tax revenue. Another way that they benefit is that they are allowed to spend more money.