Noah Smith thinks printing money and buying back the debt might be inflationary.

The first problem with that argument is that we been doing that and big time in the guise of QE over the last four years or so. And where’s the hyperinflation? Indeed, even moderate inflation is nowhere to be seen!!

His main argument, which is in his last two paragraphs, is that people might lose faith in the currency and dump it in exchange for other assets. Well that all assumes people fall for the above obviously fallacious Noah Smith argument that printing money and buying back debt is inflationary.

I suggest about 90% of those with significant sums at their disposal will have noticed that QE has had precisely zero effect on inflation, and thus that a bit more QE will have equally little effect.

Another of Smith’s arguments is that if people think that other people are about to dump money in exchange for other assets, that could turn into a self-fulfilling prophecy. Well that could happen at any time: it could happen even if QE had never been implemented.

And finally, Smith seems to be unaware of the following. Government debt is virtually the same thing as money, as various economists have pointed out over the years (e.g. David Hume 200 years ago, Warren Mosler, and Martin Wolf). I.e. government debt is a promise by government to pay you a sum of money at some point in the future.

Now if people think that money is going to lose its value, they'll think the same of government debt, so they’ll dump that as well!!! To that extent, it makes little difference whether government or “the state’s” liabilities consist mainly of government debt or mainly of base money.