“If consumers are supplied funds directly from the treasury, and their loans are

—“If consumers are supplied funds directly from the treasury, and their loans are subsidized by the state, how does this not lead to rampant over consumption by high time preference and inflation? With the inflation being essentially a tax on savers, what is supplied to the savers in return?”—John Zebley

People borrow money now. They pay principal and interest now. If they paid only principal, directly to the treasury, what is different other than the deprivation of the market of rents on loans from the treasury? In other words, where would the inflation come from? Where is the increase in money supply going to come from? The question is, what happens to all those who currently invest in consumer loans and now have to find alternative sources of investment that are less predictable?

Now you might say that the total money supply for consumption would increase by the amount of the interest that is currently paid, but one can take the smart way out and simply shorten the payment period, or one can take the chaotic way out and let prices adjust given the short term windfall that such policy would create.