For this reason, societies that wish to avoid high inflation rates often try to ensure the central bank is insulated from political pressure from the government. Central banks that are more independent from their governments have a much better track record of controlling inflation because they are not under heavy pressure to monetize the government's debt.
Many Fed watchers are concerned that large amounts of quantitative easing will yield a de facto inflation tax. The concern is not that the Fed is being pressured into creating large amounts of money. Rather, it is that in an attempt to stimulate the economy, the Fed will create more money that it can easily withdraw from circulation at a later date.
If this happened, the result would be high inflation rates and a drop in the value of money holdings. The government would repay its bonds with money that would be worth substantially less than when it was borrowed.
In other words, a tax in all but name.
Kerk Phillips is an associate professor of economics at BYU.
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