Readers Comment. The obvious question is why doesn’t the bank of England just print the money instead of borrowing the money?
Many often ask why government’s don’t print more money to deal with the problem of National debt.
The reason is that printing more money doesn’t improve economic output in any way. It merely causes inflation.
Suppose an economy produces £10million worth of goods. e.g. 1 million books at £10 each.
If the government doubled the money supply, we would still have 1 million books but people have more money. Demand for books would rise and firms would push up prices.
The most likely scenario is that if money supply was doubled. we would have 1 million books sold at £20. The economy is now worth £20million rather than £10million. But, the number of goods is exactly the same.
We can say that the increase in GDP is a money illusion. – True you have more money, but if everything is more expensive, you are not any better off.
If the government printed more money. It would create inflation. The price of goods would rise, it would have to increase benefits and wages in line with inflation. Government spending would rise because of inflation. Borrowers would require higher interest rates to buy bonds. Printing money would not solve the problem but create additional problems of inflation.
Printing more money is exactly what Weimar Germany did in 1922. To meet Allied reparations, they printed more money; this caused the hyper inflation of the 1920s. The hyper inflation led to the collapse of the economy.
However Printing Money Doesn’t always cause Inflation
In a recession, with periods of deflation, it is possible to increase money supply without causing inflation.
This is because the money supply depends not just on monetary base but also velocity of circulation. For example, if there is a sharp fall in transactions (velocity of circulation) then it may be necessary to print money to avoid deflation (see: example of US and increasing money supply)
In the liquidity trap of 2008-2011, the Bank of England pursued quantitative easing (increasing the money supply) but this only had a minimal impact on underlying inflation. This is because although banks saw an increase in their reserves, they were reluctant to increase bank lending.
However, if a Central Bank pursued quantitative easing (increasing money supply) during a normal period of economic activity then it would cause inflation.
The problem with inflation is two fold, if you allow too much inflation you will be un-competitive with the likes of China etc. this will mean more loss of employment.
To say even a meager amount of inflation is acceptable is nonsense. Inflation hits the lowest paid the hardest and it is these people who are the last to benefit from wage rises.
YES I AGREE ALLTHE ASPECTS DICUSSED HERE
Couldnt the goverment just print money and keep it to themselves to pay off their national debt?
The economic action, money printing, is key in different economic states.
That would lead to inflation indeed.
But, the money so printed has to be used in the production of necessary goods in a bid to halt inflation. That would really mean a no or meager inflation.
I learn t that even if money is printed but used in the creation of necessity goods, such spending even by a government, wouldn’t lead to inflation.
Eg: £100 is printed, and it is loaned to a bank and that bank in turn provides a loan for productive purpose, and if the production is the best one, that means a no or meager even if new money is printed!
Don’t you agree?
i understand that printing more money can cause inflation, but remember that lack of money or not enough money begets unimaginable poverty, how about printing enough money to buy machinery to work the land
how about building enough hospitals to care for the sick
how about housing project, and the list goes on and on..
guys let’s take the bull by the horn, printing too much could be a problem, but printing enough could solve a lot of problems
@ NEWGUY.100% , I Agree.
I don’t care if Dollar is Devalued, If homeless people have found a place to stay indoor.
If hungry people are fed.
If anything that benefits the people are done.
Let us use maneuver Money,not Money maneuver’s us
By the way, the articles says that “We can say that the increase in GDP is a money illusion. – True you have more money, but if everything is more expensive, you are not any better off.”
But then you are not worse off either. Inflation is not a problem. The problem is that merchants find very difficult to assign prices to their goods, because prices are changing so rapidly. But this is only a problem when hyperinflation happens (like in Weimar Germany). Hyperinflation is not always the case, though, and mild inflation is not particularly bad for the economy (read “23 things they don’t tell you about capitalism”).
Again, inflation caused by printing money is a way for the government to get money at the expense of everybody else. But if the money is employed for the public good, most people will benefit from it, except the rich, who don’t need benefits from the government. That is why governments are forced to borrow money, in order to protect the rich.
I believe that government printing money is a money transfer: the government prints money, then it can pay to build a bridge or to pay social benefits or to pay for education. Inflation will surely occur, which is equivalent to a flat rate tax on everybody (who owns money). But the people that received directly the money from the government wil benefit. If done properly, it could be a transfer from the rich to the poor.
On the other hand, borrowing money at interest will benefit the lender because of the interest paid.
By the way, I don’t think it’s true that printing money is necessarily inflationary. If the new money is used by the government to invest on projects that make the economy grow, then it will not be inflationary.
In summary, I believe that forcing the government to borrow rather than to print money is a way for the rich to protect their money (and in fact, benefit from their accumulated money by receiving interest from money lent to the government). That’s all.
somehow confused becouse i think if the gorverment print more money it wil cause the money also to loss the value, how about that?
It sure is convenient for banks that we should believe that governments (we the people) have to barrow their own money from private banks at interest. The threat of inflation exists solely as a volitional act by the merchant and ruling classes. They must make an observation of what their neighbors have to adjust their prices. Inflation occurs in order to maintain economic polarity. Some people will not be happy unless they have much more then everybody else.
If the argument that the relative numerical change in circulating currency is what is responsible for inflationary pressures is correct, then what necessitates that governments print currencies, give them to private banks for very little, and then barrow that money from those private banks at interest?
Governments (the US in this case) do not have to barrow their own currencies from private banks to avoid inflation. In addition, we do not need private banks telling us what the value of our currencies are. The government (we the people) can simply spend the currency directly both a public works or as low interest loans to natural born citizens. State banks would run the show and private banks should follow their lead.
In any case, high levels of economic polarity is the problem. Most of the “top” money takers (they couldn’t possibly earn it) are not exceptional people and therefore do not deserve to have so much more then the rest of everyone else. They hunger only for dominion over others. This is an impure goal and they are almost certain to pursue impure actions. There are far too many talented people who are subjected to the whims of a few power brokers.
There could be an infinite amount of currency in circulation and people could simply not raise their prices and not hoard. People at large are promoting the financial elite’s objectives by maintaining inflation. The more you struggle to be above your neighbor, the more you resent them and their stuff, the more the financial elite maintain.
Read (Lesa vel) Ford og Edison
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http://www.ismennt.is/not/jonasg/jg/jg06/debtslavery/debtslavery.html
In December 1921, the American industrialist Henry Ford and the inventor Thomas Edison
visited the Muscle Shoals nitrate and water power projects near Florence, Alabama.
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They used the opportunity to articulate at length upon their alternative money theories,
which were published in 2 reports which appeared in The New York Times
on December 4, 1921 and December 6, 1921.
Read (Lesa vel) Ford og Edison
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“All of the great public works cost more than twice the actual cost, on that account.
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Under the present system of doing business we simply add 120 to 150 per cent, to the stated cost.”
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(samtals 100%+(120% eða 150%)) það er 220% eða 250% kostnaður. jg)
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“But here is the point:
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If our nation can issue a dollar bond, it can issue a dollar bill.
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The element that makes the bond good makes the bill good.
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The difference between the bond and the bill is
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that the bond lets the money brokers collect twice the amount of the bond
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and an additional 20 per cent, whereas the currency pays nobody but
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those who directly contribute to Muscle Shoals in some useful way.”
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http://www.ismennt.is/not/jonasg/jg/jg06/debtslavery/debtslavery.html
Hii guys…
Thanks to all…. i got to know many things… but all got mixed up….
ok your all forgetting one major thing that affects every one in the country.
you all if lucky will retire and you pay into a pension fund correct?
now did you know that 15 years ago a pension pot of £100,000 would buy you a pension of £15000 per year.
now that same pension pot will only give you £5000!
all due to “qe” or for the older people “printing money” strange isnt it they change the name to confuse the youngsters.
also those that are about to retire and say in 10 years time pensions will be so badly affected that the young YOU! will have to pay via tax,s so that the elders can live!.
NOW REMEMBER THIS ITS NOT THE PENSIONERS FAULT ITS YOUR FOR ALLOWING THIS TO HAPPEN!
How is the creation of money by the government any more inflationary than the creation of money by the banks — which is what they do all the time? When my bank gives me a loan of $1,000 they don’t first check the vault to see if they have the money; they simply add it to the balance sheet. *They literally create that money out of thin air.*
When the govt wants to raise money they borrow from the banks who in turn can borrow from the government bank (a country’s central bank). So the govt is loaning money to the banks (essentially for nothing, considering the zero or near zero percent interest rates the central bank charges), only to borrow it back from them at far higher rates. Can somebody tell me why the govt shouldn’t just borrow directly from its own central bank? Not only would it cost the public far less, but the money would actually be returned to the public coffers (instead of to the financial elite). My understanding is that this was the practice in the post-war period through to the 1970s (in Canada at least – where I reside). The result was not only the paying down of the massive WW2 debt with ease but also the ushering in of the so-called golden age – the period of highest economic growth and greatest increase in economic well-being in the history of capitalism.
Can someone please tell me how the financing of public debt through the private sector is something other than a colossal scam to enrich the wealthy elite at the expense of the rest of us? Cuz it sure looks that way…..
hi..
i understand that printing currency does not solve the problem. Still
still If printed money needs to be backed by something like gold. Obviously this will put a restriction on the amount of currency to be printed. And what can this money be backed with?
Or
May be no backing up required. in that case bank is free to print as much as it want (it helps the country or not is another matter.)
Can you clear the smoke to make it clear?
If that truly were the only consideration more books or less books, it seems a locality would be better off having more books since in theory it would support more employment. Those bookmakers would spend their earnings in the locality on goods and services. Those receiving the bookmaker’s money for their goods and services would in turn buy goods and services… and so forth. I’ve heard there is a factor of 7 times, typically, before that money comes to a more restful state. The reverse would be true if demand dropped for books. Means fewer bookmakers were required to make fewer books. Things spiral down if there is no other job for the ex-bookmaker to jump over to.
However, the premise isn’t all that simple either. When higher prices attract more printing of books as mentioned. Eventually that more printing will typically over shoot demand and cause prices to drop. Being raised on the farm, you see this over the years with agricultural products. High cattle(or any other product) prices cause more people to raise them. The product supply grows and the prices come down causing some to raise less of that. Less supply causes the price to rise. All standard economics so far. But what happens to the equation when the bookmaker loses his job and can’t afford the beef even when the cycle of price is at a low? Well it means the supply/demand balance line has shifted downward. What happens when some govt weasel is handed a big bankroll and then gets his committee to allow foreign imported cattle? Shifting to another commodity more important to many because they need it drive to work and heat their homes. What if you have a lot of money and influence the media to make people believe their is a shortage of your product even though your supply is larger than ever? What happens if you can get your middle eastern monarch friends to gin up a war? Unfortunately it is very difficult to cover all aspects of the financial and monetary system without holding something constant so you don’t have to deal with its impacts on the equation.
Is printing money good or bad?
Some may ask what is wrong with printing money in hard times? My question is what is right with it?
Economics doesn’t have to be complicated at all if one could remove corruption out of the picture. How should a small town’s economic differ from that of a small family’s?
A county’s from a state’s or province’ a state from a country? They should all be managed identically to ensure solid economics. Too simplistic? Not at all. All the world’s economic problems would not have occurred and could be solved by not spending more than you have. Inflation occurs because people would rather pay more for something to get it sooner rather than save and buy it when they have the money. When banks are willing to loan most people money, there are more dollars chasing homes and home prices rise. If people waited until they could buy it for cash. Home prices wouldn’t obligate the average working man for the rest of his life. By taking the bait of a loan to get what you want now, you sacrifice your freedom. You feel you have to keep working at that crap job to make the mortgage payments and car payments and credit card payments.
Silly leaders of Countries did the same thing, they took the World Bank and/or IMF bait of money now, here have some more, so much that it will cause inflation and ruin your economy when the loans can’t be paid back. One certain way to keep the competition from another country from emerging. (Argentina some years back comes to mind) He who controls the debt makes the rules. Do you want to be ruled or free? Clearly the citizens of the usa voted in a President who wants to enslave them all. It seems the banker of the world want less freedom. It is definitely much easier to give away than to get back. Why do people not see this? That lack of debt is freedom and debt is control? I have friends who think they are getting informed by watching the TV. Yet who owns the media? It certainly isn’t the free press. Wake up world, shed your debt before its too late (maybe it is too late) or you will be slaves to an unkind master.
YESS THAT IS TRUE