The inflation tax

As the world economy is slowing down governments has two categories of tools to use to help their economies, fiscal and monetary policy. One involves the state increasing spending or cutting taxes to stimulate demand while the other involves the central bank simply printing new money and injecting it in to the economy. To many monetary policy might seem preferable since you would then get something for nothing. While fiscal policy is financed by tax money either collected now or sometime in the future, monetary policy simply involves printing some new money.

But monitory policy is paid for with inflation rather then taxes, which will have a similar effect on the citizenry. As the supply of anything increases its worth falls, this is as true of money as it is of tomatoes. When more money is created the value of all other money decreases. So in order for this new printed money to come in to existence the money in everyone's bank accounts will be worth a little less and everyones salaries will decrease a little in real terms. Instead of paying a direct tax to the government (either now or sometime in the future) to finance its fiscal policy the value is directly extracted from your bank account and your salary.