The Problem with Printing Money

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 increase economic output in any way -  it merely causes inflation.

  • Suppose an economy produces £10 million 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 £20 million rather than £10 million. 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.
  • In this simple model, printing more money has made goods more expensive, but hasn’t change the quantity of goods.

Problems of Inflation

Why is inflation such a problem?

  1. Fall in value of savings. If people have cash savings, then inflation will erode the value  of your savings. £1 million marks in 1921 was a lot. But, two years later, your savings would have become worthless. High inflation can also reduce the incentive to save.
  2. Menu costs. If inflation is very high then it becomes harder to make transactions. Prices frequently change. Firms have to spend more on changing price lists. In the hyperinflation of Germany, prices rose so rapidly, people used to get paid twice a day. If you didn’t buy bread straight away, it would become too expensive. This destabilises an economy.
  3. Uncertainty and confusion. High inflation creates uncertainty. Periods of high inflation discourage firms from investing and can lead to lower economic growth.

More on problems of inflation


Printing Money and National debt

Governments borrow by selling government bonds / gilts to the private sector. Bonds are a form of saving. People buy government because they assume a government bond is a safe investment. However, this assumes that inflation will remain low.

  • If governments print money to pay off national debt, inflation would rise. This increase in inflation would reduce the value of bonds.
  • If inflation increases, people will not want to hold bonds because their value is falling. Therefore, the government will find it difficult to sell bonds to finance the national debt. They will have to pay higher interest rates to attract investors.
  • If the government print too much money and inflation gets out of hand, investors will not trust the government and it will be hard for the government to borrow anything at all.
  • Therefore, printing money could create more problems than it solves.
  • See also: Printing money and national debt



Hyper Inflation in Germany during the 1920s


Inflation was so bad in Germany that money became worthless. Here a child is using money as a toy. Money was used as wallpaper, to make kites. Towards the end of 1923, so much money was needed, people had to carry it about in wheel barrows. You hear stories of people stealing the wheel barrow, but leaving the money.


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.

Hyper inflation also occurred in Zimbabwe in the 2000s.

Printing Money and the Value of a Currency

If a country prints money and creates inflation, then there will be a decline in the value of the currency.

  • Suppose inflation in Germany is 100%, and inflation in UK is 0%.
  • This means German prices are doubling compared to the UK.
  • You will need twice as much Germany currency to buy same quantity of goods.
  • The purchasing power of the German currency is declining, therefore the value of mark will fall on exchange rates.
  • See also: Printing money and the exchange rate

Value of One German Mark to US Dollar 1922-23


Hyperinflation in Germany causes a rapid fall in the value of the German mark to dollar.

In a period of hyperinflation, investors will try and buy a stable foreign currency because that will hold its value much better.

Printing Money doesn’t always cause inflation

In a recession, with periods of deflation, it is possible to increase the 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 2008-2012, the Bank of England pursued quantitative easing (increasing the monetary base) 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.

86 Responses to The Problem with Printing Money

  1. AG August 26, 2008 at 2:05 pm #


    I would be grateful if any one had any thoughts on the following question.

    I understant that if a government were to print more money and circulate it into its own economy, that this would inevitably lead to increased inflation in its country. Sound argument for not printing more money.

    But why would a country not print more money to purchase from other countries (e.g. to repay debt or to purchase raw materials). Wouldn’t the extra money then simply be dumped into the other country, leading to higher inflation in that country and not your own? Or perhaps is the answer that in dumping the extra money overseas, you are indirectly creating more money in your own territory?

    Maybe a naive question but I would love to have a good answer to it!

    Many thanks


  2. a September 1, 2008 at 12:08 am #

    Hmmm….does printing money cause more or less inflation than borrowing from institutions who lend on a fractional reserve system?

    The reason the Govt borrows is because the king (&country) got conned by William Patterson in 1694 and has been screwed ever since.

  3. Yank November 19, 2008 at 10:24 pm #

    This explanation completely ignores the fact that when the government “borrows” money from the Central Bank that’s exactly what it does. It creates the money out of thin air and gives it to the government to spend in exchange for Government debt (i.e. IOU’s).

    Not only that, but through the process of fractional reserve banking private banks use the Central Bank’s “new money” as the basis for increasing the money supply by an additional 1,000% (10X) through private lending.

    Adding insult to injury, not only does the current system multiply the inflationary impact of government deficit spending (10X as much as if the government had simply been honest and printed the money itself), but it also requires the government to levy additional taxes on our children to “repay” the principal and interest on the original “loan”.

    The fact is, if the government cut out the middleman and used seignorage (i.e. the government’s power to levy an indirect tax on its citizens by simply printing more money) we would all be much better off (at the expense of the bankers).

  4. Ralph Musgrave December 13, 2008 at 12:56 pm #

    Printing money does NOT necessarily cause inflation. There are obvious instances of where printing very large amounts of money HAS caused inflation, e.g. Germany in the 1920s and Zimbabwe today. But print the right amount at the right time and the results with luck can be entirely beneficial. Here are some examples of where money printing is not inflationary.

    1. The instance cited above, namely paying off the national debt with newly printed money. Japan has printed large amounts of money and bought back national debt over the last ten years. This goes by the fancy name “quantitative easing”. The idea is to drive down long term interest rates with a view to simulating demand. Unfortunately this ploy has had precious little effect in Japan (on inflation or anything else). One of the reasons for the non effect is not too difficult to fathom: holders of national debt regard it as SAVINGS – they are not going to run out and spend this just because a tranche of savings are converted from government debt to cash. They’ll just plonk the cash in a deposit account. Put another way, expanding the money supply depends crucially on what people do with the newly printed money. If they don’t do much with it, there will be no effect.

    2. Given a recession, it is entirely reasonable to print a bit of money with a view to stimulating demand and getting employment levels back to normal. Prof Joseph Stiglitz has been saying for years that Japan ought to do this. If governments can print exactly the right amount, the effect would be to bring employment levels back to normal with minimal inflation. There is also a discussion at a Financial Times site on the merits of printing money:

    However, it is questionable as to whether governments have the skill to print exactly the right amount. Milton Friedman claimed that governments do not have this skill and that the best option was to go for a small annual money supply increase, while allowing booms and recessions to work themselves out.

  5. T.Pettinger December 13, 2008 at 3:28 pm #


    I recently wrote a post here: saying how increased money supply wasn’t causing inflation in US

  6. Steve January 20, 2009 at 1:05 am #

    The example of 1 million books is good but forgets one thing. There is a recession and although he may have 1million books the problem is only half of them have sold and probably at a discount too. Put more money in peoples pockets and maybe he can stop discounting and sell more of the million. This would increase GDP and stop deflation too. The trick would be to not put so much money out that demand for the books dosen’t exceed the 1million available. Simple eh!

  7. Maths Dunce January 21, 2009 at 8:43 pm #

    I’m confused, please help!

    Say, eg, the govt printed money to double the money supply for every 1million currently in circulation, thus making 2million, would my savings of 1million then be worth half million?

  8. BarryGeorge January 29, 2009 at 9:13 am #

    Can anyone answer AG’s wonderful question? I’m struggling withg it myself. Just to repeat his question :


    I would be grateful if any one had any thoughts on the following question.

    I understant that if a government were to print more money and circulate it into its own economy, that this would inevitably lead to increased inflation in its country. Sound argument for not printing more money.

    But why would a country not print more money to purchase from other countries (e.g. to repay debt or to purchase raw materials). Wouldn’t the extra money then simply be dumped into the other country, leading to higher inflation in that country and not your own? Or perhaps is the answer that in dumping the extra money overseas, you are indirectly creating more money in your own territory?

    Maybe a naive question but I would love to have a good answer to it!

    Many thanks


  9. palmer February 8, 2009 at 5:26 pm #

    I do not understand “printing money”.I take it is not borrowed through gilt sales so where and how does it appear in the governments figures?

  10. Navigateur March 5, 2009 at 7:07 am #

    Now hold on a minute! This article is bogus. You can simply print more money and destroy the money slowly over a longer period from taxes collected. This is the equivalent of interest-free borrowing. And therefore would not lead to inflation in the long term.

    To answer the question about using printed money to buy goods from other countries: it comes to the same thing because those printed pounds will always end up with somebody, and those pounds will inevitably come back to the UK, because no other country besides the UK accepts pounds! So to avoid inflation, the government should destroy the money over time from taxes like I’ve said. By the way I’m not an economist, just figuring it out like you folks. I’m right, am I not?

  11. Richard Rainey March 22, 2009 at 2:25 am #

    Printing money by a government, might not lead to inflation, if that government handles that printed money wisely. Take the US and other Western economies that are in trouble today because of the credit failure by banks and financial institutions.
    If I were one of those governments looking to get out from under these financial problems by “printing” my way out I would do it this way to solve the problem and prevent any form of inflation that might result from that “printing”.
    First, the money that I “print” I would give directly to the “people” in the form of a 33 year interest-free loans limited to $400,000 dollars per. Instead of giving it to any industry or business. This way would get the money into the economy quicker, more efficiently and have a better affect on the economy than going through the regular business cycle and hope they lend it out.
    This method lets the borrower pay-off all his interest-burdened monthly debt: mortgage, credit cards, student and auto loans etc. Lowering the borrowers monthly costs substantially allowing him to either save or spend that positive differential created by ridding himself of the interest on his debt and the extention of his principal out over 33 years. While at the same time re-capitalizing those finacial institutions that held that debt. This would keep government out of business’s business and solve two problems using the same dollar a two-for-oner.
    To prevent any inflation from this printing the government, as those loans are repaid, would take that money out of the economy. And the banks, having received a large influx of capital, would only lend out what they would have been repaid over the year had nobody defaulted on their debt.
    Though trillions were printed only a 1/33 of the money would be affecting the economy at any given time. So, at most, inflation would be around 3%. Had the money been borrowered we be paying about 6% compounding for years.

  12. kanika March 22, 2009 at 2:40 pm #

    hey the quetsion which AG asked is very good i was thinking about solution so just trying to find the answer through applying accountacy i dont know may be i am wrong……..when u print money and pay off your debt with it to other country the debt on the laibility side of the balance sheet is wipped off but your assets standing as it is so your balance sheet will not tally….where will you put the diffrence….? well i think this may be a wrong solution but if any of you have the anwer then please reply

  13. Paul Hield March 24, 2009 at 7:37 am #

    The biggest problem with government printing money is that banks regard it as their prerogative and is the source of all their income. Since, under a fractional reserve banking system, banks lend out between 10x and 30x what depositors invest, banks have created between 90% and 97% of all the money in use and they charge interest on all that money. If government stepped in to create money instead, the banks in their current lucrative form would cease to exist.

  14. Ryan March 31, 2009 at 8:06 am #

    Printing money would affect the exchange rate, so it would be adjusted for that way and would not help you pay off national foreign debt

  15. Bond April 2, 2009 at 12:18 am #

    Hi All,

    I went through this blog, i have a question on printing Money, Lets CountryA came up with ProductA with costA, CountryB is intrested the Product and buys the product for CostB, lets assume the gain CountryA got is GainA, now the question is how the CountryA represents this gainA????

  16. karam June 24, 2009 at 11:39 am #

    if it were that easy to solve an economic problem we wouldnt be in this situation in the first place

  17. Adwit August 29, 2009 at 11:15 pm #

    nw i more thing to all this if there is a construction required to be done for which the GOVT is payin an international company . why can’t the govt print extra money get these jobs done or defense deals etc.

  18. Pakistani blogger September 3, 2009 at 7:53 pm #

    @AG: The money would be useless to an importer until it is converted into his home country’s currency. When he does that the money would eventually find its way back into the country of origin and lead to inflation there.

    Remember the little bits of paper we call money is actually worth nothing. Its the value given to it by a country’s central bank that is worth something. Outside your country the money is only worth something when it is exchanged into the local currency. That exchange is only possible if the originating country’s central bank allows it and accepts its own currency back.

    However there are a few countries in the world that can get away with printing money to pay off foreign debts to some extent. Countries like the US, European nations and Japan have currencies that are used by central banks around the world to keep their foreign exchange reserves. So their currency is more acceptable globally. However even here there is the risk that if you continue to print money central banks will loose confidence in your currency and start using other currencies (such as what china is starting to do with its dollar reserves).

  19. DR NABEEL ASHIQ October 11, 2009 at 11:09 pm #


  20. adam braus February 3, 2010 at 5:39 am #

    as to the answer to the first question about ‘dumping’ money, that new money will just come back as demand for exports, so exporters will (by the cantillon effect) experience a ‘boom’ that is only due to monetary disequilibria, not because of real demand. As the exporters demand more resources and labor, the economy will be further shoved off kilter towards exporting. This is what the Chinese do buying American debt, and what American does by making unilateral loans to nations and then selling them guns. It is an exporter subsidy and means a redistribution of wealth from other sectors of the economy to this one.

    I am writing a book about this thread, so stay updated with my blog!

  21. adam braus February 3, 2010 at 5:43 am #

    One more effect! (sorry . . . :o)

    If the balance of trade is uhh NOT balanced, like the US, then the ‘dumping’ will just raise demand on national assets, like land, houses, and companies. This might explain in part why so many foreign investors were bought in so deeply into the american housing market.

    In a way, this sort of inflation is like the government having a garage sale on the nation’s assets which, the last time I checked, were the people’s homes, businesses, and land.

  22. Superheavyweight February 25, 2010 at 6:57 am #

    Why would inflation rise if people bought more books?

    Company greed?

    Why would firms push up their prices?

    If they would, then certainly they need educating?

    It’s like living on The Planet of “You Married a Carrot”.

    I can’t give Publius any chocolate because Firminus will ask for more champagne.

    Why would inflation rise?

  23. Superheavyweight February 25, 2010 at 6:58 am #

    I don’t understand.

  24. Ralph Musgrave June 21, 2010 at 4:36 pm #

    Superheavyweight: You are right – printing money does not necessarily cause inflation, as David Hume pointed out in his essay “Of Money” 250 years ago. If I print a billion tons of £20 notes, store them down a coal mine and don’t tell anyone what I’ve done, there would be no effect on anything (except a rise in demand for ink and paper).
    If I then start spending them, there would still be no effect on inflation till the spending exceeded the ability of the economy to deliver.

  25. Richard July 16, 2010 at 8:40 pm #

    The world has changed since the main worry of printing money… it no longer represents anything concrete, like gold, you don’t even have to print it – it is merely figures on computers.
    In the case of the British national debt – most of it it is owed to Chinese speculators, apparently, who spend all their time shifting currencies around. So at a single click of a button, they could wipe out the debt.
    Then, it wouldn’t necessarily affect our economy because they could transfer it into any currency they wished. It would be a risk but…
    In any case, people may as well suffer with inflation, as with having their health, education, jobs, livelihood, heating and so on taken away, not to mention bus passes! Which is what is now on the agenda. With high inflation you just get the poverty without the eradication of public services and inflation is temporary.

  26. financial spreadbetting August 18, 2010 at 7:09 am #

    Our exhange rate would go through the floor. It would mean that the price of the things we imported will rocket and other countries and investors would want to take on our debt…something that we have come rely on.

  27. Dan September 10, 2010 at 1:34 am #

    Thinking outside the square .. remember one thing money is merely printed to facilitate trade . Thats all !. Money is not an end unto itself .. infact money itself has little or no value apart from the paper it is printed on . It is ‘fiet’ money . In order to get a market trading using paper money ( instead of bartering) the govt prints money . What happens if there is more money printed than goods in a market ? you get Zimbabwe ! with million dollar notes for a loaf of bread and hyperinflation .Effectively the money has NO VALUE .. only tradeable items and related services have value. In a deflationary market there are still goods but people refuse to part with their money to trade goods .. they ‘hide it under the mattress’ so the govt has to flood the market with money even ‘helicopting it’ over the masses ‘ . They did this in Australia ..well actually the govt posted 900 dollars to every taxpayer and it worked . Australia was unaffected by the GFC .People continued to trade using money . In the end its not about money its about TRADE .

  28. Trey September 12, 2010 at 2:39 pm #

    Printing money is the easiest thing to do. But in my opinion, it’s been proven to be destructive in the end.

  29. melvin September 13, 2010 at 4:45 pm #

    All of this sounds like a bunch of crap, we print money and then we borrow money, now you tell me, I make sand for the beaches around america but I also borrow sand from other countries, it doesn’t sound educated, the bottom line america stop listening to these pulpits or so economic advisors, like all of them they talk out the side of there mouth, we print up money and we can’t fix our problem and then you say inflation stop it prices would not go up and the money will be put back into the economy so all that crap you are saying is a bunch of b.s. people think about it, we print up money why borrow, because they don’t want us to ask questions.

  30. JC October 1, 2010 at 6:00 am #

    The argument given in this article is like this:

    1. ‘Printing money’ [this is actually just crediting accounts at the central bank] increases the money supply.
    2. Increasing the money supply increases demand.
    3. Faced with increasing demand, firms will only increase prices (inflation.)
    4. Therefore, printing money causes inflation. QED.

    The logic makes sense, the problem is the 1st and 3rd premises are rather contentious. I’ll start with the 3rd premise because it is the easiest to explain.

    Faced with increasing demand, a profit-maximizing firm will either a) increase prices until demand = supply or b) increase production until supply = demand. With enough competition, firms will prefer b) since a slight increase in prices will drive almost all of their customers to a competitor. If one bookstore charges 10$/book and the one next door charges 8$, you won’t see 20% of customers switching, you’ll see nearly 100%. Bookstores will thus rationally order more books, so increasing demand will not just simply cause inflation (as long as machines are underutilized – i.e. there is unemployment and underemployment.)

    The first premise is a bit more difficult. Any time someone lends money to the government by buying bonds, the central bank debits the bondholder’s bank and credits the government account. The government then spends that money by crediting banks and debiting it’s account. The net transaction is 0$ being created. When the government ‘prints money,’ on the other hand, it debits its account (which can overdraft indefinitely without default. Government cheques don’t bounce) and credits banks. This leaves excess reserves in the banks which they will lend out to other banks (driving the interest rate to the deposit rate, which might be 0%) or keep to back private loans. The article assumes that banks have a given amount of reserves and private entities will instantly take out loans until the bank meets its reserve ratio. That’s like saying that you will always max out your credit card.

    The reality is different, though. Banks lend to whoever is credit worthy and at the end of the day make sure they have enough reserves. They do this by either borrowing from other banks or by borrowing from the central bank (i.e. having money printed for them.) So private sector demand for credit will determine the size of the money supply, not how much money is in central bank accounts (though the interest rate can affect this.)

    Ultimately, the central bank prints money anyways to allow the money supply to accommodate increasing trade. So the operational reality of the government spending without issuing debt isn’t much different from spending with debt issuance, except for the fact that interest rates are driven down. The central bank can choose to control the interest rate directly by setting the deposit rate, or it can let it fall to 0% and the government could use taxation to control inflation. Using taxes to cool off the economy has the advantage that 1) it can be targeted to specific sectors and 2) the voters ultimately decide what the trade-off between standard of living and price stability should be, rather than unelected central bankers. There’s also the advantage that the economy can be allowed to grow to its full real potential without fear of having to ‘pay back’ anything.

    If you want to learn more, this is called Modern Monetary Theory (MMT).

  31. The Arthurian October 1, 2010 at 11:53 pm #

    Nice, JC. Most of your comment I liked. I have trouble with: “…borrowing from the central bank (i.e. having money printed for them.)” and “private sector demand for credit will determine the size of the money supply.”

    It seems to me that you are confusing money and credit. Any private sector “money” that costs interest and/or must be paid back, is CREDIT.

    Any chance you would visit my blog & leave MMT links or info? What you said here is better than the hour I spent on Warren Mosler’s Dallas address. Thanks, bud.


  32. chirakkal October 24, 2010 at 2:37 pm #

    Any nation should go printing the currencies based on demand supply theory.

    Value of goods worth is the equivallent of currency printing volume. Anything less or more will lead to deflation or inflation effecting the currency value.

    It is like in physics “every action has a counter action”, It is like in Accounts ” every debit has a credit’. It is like in Maths “every positive number has an equivalent negative number”

    At macro level, whatever we do any action will circle and end up at the origin with same level of questions again.

    Philosophically speaking economic is also like the life….

  33. tabeer October 25, 2010 at 8:34 pm #

    printing new money is somewhat destructive bcz i we are nt increasing the output level then new money willl increase the prices of goods in the economy which leads to the inflation….

  34. mick November 8, 2010 at 12:30 pm #

    Money is scam plain and simple.
    So why should any government borrow money when it can just print it ? Well regardless of borrowing it or printing it , it still inflates the economy that either receives the lent cash or prints the cash. However they get it , its inflation. Like a Balloon, its getting bigger. Now, you have too ask, why borrow it all when you can print it. Exactly why why WHY ? To keep you going to work and not fucking rioting in the street. Now that everyone is slowly working out that the money supply is a scam, watch them nuke everything and come up for air 12 months later. Back to reality. So now that you have realised that dumping money into an economy inflates its supply and devalues its worth, have a think about what giving 500 million dollars does to a small country if you give it AID $$$. So 50 countries donate 500 million dollars each once or twice a year to say Indonesia, no wonder their economy is worhtless , the other nations are deliberatley keeping it poor buy over inflatting its money supply in AID money.
    So next time you hear on teh radio that someone donated some buck$ in AID , realise its a trick. And how exactly do they send one country Aid $$. How does America give American Dollars to Haiti when they have Haitian curency with prince pawpa printed on it. Antoehr good question ” me ” , do they type it into the IMF computer and spit out some hot haitian money. YEP !!!! Economic warfare. So anyway back to money . So does anyone else realise that China is busy printing money and just buying up fucking Europe. NOt bad for a guy that finished school at year 10 and I failed. Oh look at me Im Colonel Ghaddafi , Im going to print up some money and buy France. Whos going to stop me , how can they stop me, wait , who will stop me ? Does the IMF have and the world bank have an army ? Holy crap batman , people have been printing loads of money not backed buy anything but swiss chocolate and noodles and gone and bought up nuclear weapons and sharp point sticks , and worse still, they used credit and promised to pay us back in paper. OKay seriously, we had better print some BONDS and issue those straight away. INSERT MASSIVE LAUGH AT THE DUMB PEOPLE HERE *****

  35. R.JR November 9, 2010 at 11:19 pm #

    Ok…for all you people who keep making your explinations more and more complicated…
    Here is the simplest explination which was always simple to start with before everyone started trying to explain the exact route a dollar travels ….
    Dollars represent how much gold you have which is REALLY how much money you have. So for this example we are going to say that an apple is your gold and sliced apples are your money.
    you go to the vender and get an apple…you cut it into 4 pieces. Your 4 pieces equal 1 apple. If you wanted to trade it back into the vender for another apple, how many pieces would you have to give the vender?? Right , 4 . Now suppose you cut each of those pieces in half? Now you have 8 pieces. How many pieces would you now have to trade in to get a new apple ? Right ,8.
    No matter how many pieces you cut it into , that will become how many pieces it takes to trade it in for a new one.
    Now, Moral = No matter how many dollars you print it still takes everyone of those dollars to equal the gold. Only way to spontainiously create more wealth in America is to create gold.

  36. steve chambers December 6, 2010 at 8:52 pm #

    I wish i could just magic gold out of the air like certain leaderships do. Imagine if the US had to produce all the gold they had in relation to the amount of dollars floating around.. likely.. i think not.

  37. Werner December 23, 2010 at 9:25 pm #

    Issuing more money causes inflation because we say it does. It’s supposed to be a cause for concern that an increase in demand will cause a decrease in availability. But that should only worry you if supply is not being kept at an artificial level in the first place, which it is, by for example international trade tariffs. There is more than one currency and each of them has to hold back on forging more money at an ever increasing speed because if everyone is rich then no one is poor. And who’s going to do the work then? The ones who want to work, of course. Moreover, if one currency end-boss issues a decree for an increase in the pool of available trade juice what’s to stop the other currency overlord to do the same? International payment processors keeping record of exchange rate fluctuations, of course. What’s to stop the world from having a million currencies? Nothing if you decide to peg your currency to another. In that way you’ll make two currencies the same currency and be right back where you started.
    So let’s put this into practice: I now have a million currencies each printing a million units at a millionth of a fraction of a second. All I have to do now is move this money from the happy place in my mind to the minds of millions of other citizen’s who will the feel obliged, driven by their desire for competition, to outwit each other with my currency. It will be of the utmost importance to keep them interested.
    A currency needs to be branded so that it can be cool. That is why the fading away of paper money is causing so much disloyalty amongst trade juice consumers. (They are RUNNING away from the $) No longer can you see the savior of your ideology or other symbols of high sentimental value combined with neat water marks. Now you live in a world of numbers. You don’t even know your hero’s, but trust me, they’re out there, and they’re watching ;)

  38. BEcons January 9, 2011 at 12:57 pm #

    Hey can anyone explain to me how does the US printing money leads to China’s inflation?

  39. Richie January 12, 2011 at 12:11 am #

    Printing money does not cause inflation once the amount printed is monitored. It does however cause a devaluation of the currency if the currency is a floating one. This is not necessarily a bad thing either because it increases exports and for export based economies like china that’s a good thing. To answer becons question, if US prints money it lowers its value against the Chinese yaun. This causes an increase in prices of Chinese goods being exported. Hence China maintains an artificially low value currency. Hope that helped.

  40. WASanford February 14, 2011 at 9:21 pm #

    The supplier of the answer only supplied us with half of the theory-and it’s even more complicated that that.

    According to theory, the higher prices for books should encourage the printing of more of them. Now the more complicated part; when banks don’t lend, the money supply actually shrinks, lessening demand for books, causing the price of them to drop. This encourages the publishers to print fewer books. So our economy has less money and fewer books.

    So how are we better off; having more books with somewhat higher prices, or having fewer books with lower prices?

  41. Wylie February 23, 2011 at 8:17 am #

    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.

    • mahdi yusuf February 5, 2012 at 12:43 pm #


    • MR ADEBAYO October 24, 2012 at 8:05 am #

      from my own observation printing o money will cause inflation, because if government borrow it can repay back through taxation and other fiscal policy and the economic will stead stable but if government print money their will be nothing to repay and this will cause inflation in the country

  42. abhinandan February 27, 2011 at 3:39 am #

    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?
    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?

    • Gareth December 5, 2012 at 10:42 pm #

      Have a look at their videos will explain why the present system of creating money, by banks issuing it as debt, is hugely flawed and makes economies susceptible to booms and busts.

  43. Mike Friday March 25, 2011 at 4:08 am #

    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…..

  44. Ajay April 20, 2011 at 9:38 am #

    Hii guys…

    Thanks to all…. i got to know many things… but all got mixed up….

    • robin burt February 12, 2012 at 1:45 pm #

      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!.

  45. Jónas Gunnlaugsson July 18, 2011 at 11:33 am #

    Read (Lesa vel) Ford og Edison

    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.


    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
    “All of the great public works cost more than twice the actual cost, on that account.
    Under the present system of doing business we simply add 120 to 150 per cent, to the stated cost.”
    (samtals 100%+(120% eða 150%)) það er 220% eða 250% kostnaður. jg)
    “But here is the point:
    If our nation can issue a dollar bond, it can issue a dollar bill.
    The element that makes the bond good makes the bill good.
    The difference between the bond and the bill is

    that the bond lets the money brokers collect twice the amount of the bond

    and an additional 20 per cent, whereas the currency pays nobody but
    those who directly contribute to Muscle Shoals in some useful way.”

  46. bongstar420 July 30, 2011 at 6:45 pm #

    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.

  47. Ramón September 11, 2011 at 5:41 pm #

    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.

    • maggie September 28, 2011 at 1:18 pm #

      somehow confused becouse i think if the gorverment print more money it wil cause the money also to loss the value, how about that?

    • Ralph Stevsion March 29, 2013 at 7:55 pm #

      I think that is called socialism.

  48. Ramón September 11, 2011 at 5:53 pm #

    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.

  49. NEWGUY September 17, 2011 at 3:45 am #

    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

    • solara October 12, 2011 at 11:53 pm #

      @ 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

    • R September 17, 2012 at 12:43 pm #

      In the US, we already have enough machines to till the land, and there is already plenty of housing and lots of hospitals. What you’re proposing is a nation-wide welfare program were everyone gets everything for free. How well does that work in other countries? Not well at all. America wouldn’t be any different.

      Anyway, the USA is already 1/2 welfare state, with half the citizens not paying any taxes at all. I’m in that below poverty income bracket myself, but if I ever hope to get out of it, this country needs to stay away from ideas like yours.

      In a utopian society such as the one you describe, where the government provides everything to its citizens, who would bother working? There wouldn’t be enough doctors and nurses to man the hospitals, or enough builders to build the free housing. Farmers won’t bother tilling the land, either, if the common expectation is that the government will just hand us everything.

      In that scenario, our Amercian spirit will die. We’ll no longer have the drive to make this country better for future generations. Instead, we’ll just stand around waiting for government hand outs and start riots and kill each other when the hand outs run out. We’ll become helpless, lazy, and irresponsible.

      Do want to live in that kind of country? I don’t.

      Utopian fantasies are just that: a fantasy. Prosperity only happens with hard work and smart choices. This country already has all that it needs. The problems we have are caused by distribution problems, laziness, ignorance, greed, and power struggles. Get rid of those things, and we’ll get as close to Utopia as any society can be.

    • Ralph Stevsion March 29, 2013 at 7:19 pm #

      Look printing money is really bad. If printing money would work then we could just print a train load of it and then we all just stop working and lay up and spend. That can not work. Who is going to grow our food? Money that is only brought into existence by labor will work. The printing will not.

  50. Naveen Kalyani December 10, 2011 at 7:40 am #

    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?

  51. anomayous December 26, 2011 at 3:26 pm #

    Couldnt the goverment just print money and keep it to themselves to pay off their national debt?

  52. mahdi yusuf February 5, 2012 at 12:36 pm #


  53. Des April 1, 2012 at 9:20 am #

    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.

    • kev November 4, 2012 at 2:19 pm #

      I agree with you as it is everything is going up in price all the time as well. As I see it we should stop the price increases because it is the greedy rich business owners that really gain take places like Woolworths and of course comet all just cover ups to make more money how can a company such as these go into administration yes bankruptcy close all their stores so they don’t have to pay wages anymore then trade online game have done it as it is if you become bankrupt you cannot even have a bank account and you cannot run a business for I think it is at least 5 years and you certainly cannot trade under them names so whose committing a crime and look at how much money they are making game as well they have done the same and our banks and law and government let them get away with it if it was us that were bankrupt it would be not a chance you can have a loan or an account and you couldn’t run a business look into it that’s your capitalists at work

  54. MBond November 2, 2012 at 6:21 pm #

    You’re wrong, in selecting just one side of the equation for evaluation.

    Like all economic commentators you have missed the other side of the equation and what action, it does not have to be the government, can be taken to adjust the balances to counter inflationary action of increased money supply.

    That is the basis of my new work.

  55. Anonymous December 3, 2012 at 12:54 am #

    An other problem is keeping the books! The pun is intended.

    In your first example model, the book stores and the citizens suddenly loose books. This is tangible wealth lost, in addition to prices rising. The books are lost by the citizens by czars buying the books. If the money supply doubled, and the prices doubled, half the books could be purchased by the czars. The czars buy tangible things with that printed currency. Tangible wealth is lost by the human and business sectors of the economy.

  56. TORI MASS December 12, 2012 at 3:37 am #

    seriously. why couldn’t they just do this, but in a different way??? this article is only looking at one point of perspective and that is if the government prints sooo much money to the point money is value less. why don’t they just print some where it would be given to the homeless (I see much in cities such as LA) so they could have shelter, and some decent food? they don’t have to increase money for everyone, but the ones who are suffering and truly need it? yea its unfair to the rest of the US but at least there aren’t any getting sick OR ATACKKING anyone (saw it from a news a while ago, it was horrible cause he was ripping the victim’s eyes out urgh) print some money to help schools, charity, and any other kinds of programs that helps others. or to pay off part of that fat load of debt that US has gotten. or is all of this against the law.

    • Ralph Stevsion March 29, 2013 at 7:12 pm #

      Printing money is nothing more than counterfeiting. It is supply and demand. If I have one apple and 1000 people wanting apples then my apples would sell for a very high price. But if I have 1000 apples and only one person wants an apples then my apples are not worth much. So why would this not apply to money? It does apply to money. The more you print the less it is worth. The Fed has driven interest rates to near zero so the interest on our debt will not eat us alive. What is that doing to a person on a fixed income? It is robbing them. Same thing with inflation. Inflation kills a person on a fixed income. Think the Fed cares? No.
      Printing money will eventually destroy our economy and our currency. Problem is, this is all the Fed has left. They have already pulled all of the rabbits out of the hat and printing money is the last rabbit.

  57. speedyloansearch January 9, 2013 at 1:38 pm #

    If the Fed buys assets at a price above their ‘true’ value as I believe it did in 2009 and as I believe the ECB is going to do with OMT, then the central bank will just hold the asset to maturity, collecting interest income in the process. The point is, unless there is a default no one sees any transfer of income from the central bank to the bank. The Fed and the ECB can claim without anyone being able to definitely prove otherwise that they bought the assets at a fair price and that no transfer of income occurred.

    But, of course, the Fed is also saying that it has lowered interest rates via lower risk premia and shifted private portfolio preferences. To me, this logic is prima facie evidence that the Fed wants to artificially impact asset prices, the ne result of which can only be a gain for private agents that would otherwise not exist.

    • Simon March 14, 2013 at 2:18 am #

      What on earth are you saying here ?

  58. AfricanAmerican February 17, 2013 at 8:11 pm #

    We don’t need the voodoo of economics. Obama will save us by printing mass amounts of money from thin air.

  59. No inflation March 25, 2013 at 8:37 pm #

    If a country has 1000 money units, and the government prints another 1000 units, the value of a money unit will be halved. But the number of units has been doubled, so globally nothing happens!!

  60. Paul April 2, 2013 at 11:12 am #

    This is a simplistic assessment on a number of counts.

    Firstly, a government would never want to “double” the supply of money in the economy. We are talking here about whether it is possible for a government to print enough money to cover its deficit, and therefore avoid national debt, and the crippling interest payments those debts incur over time. Even in the past four years, when government spending has rocketed due to the bank bailouts, the deficit as a percentage of M in your equation (generally considered to be M2) was still only 10%. Historically it has been closer to 2/3%, which is an entirely acceptable rate of inflation assuming V and Q remain constant.

    The problem is that V and Q are not constant. The velocity circulation of money decreases during recessionary cycles, which means that M can be increased more without any change to P. That is Keynesian economics, that governments should increase spending during recessionary cycles. Also Q is not constant. The example you have given above is the Friedman “drop dollar bills from the sky” example, which is used specifically to inflate an economy i.e. to make inflation in a deflationary cycle. More likely would be that a government would use its spending to finance public works, i.e. creating employment (which would decrease unemployment and therefore lessen benefits payments and reduce the need in later years for more spending) and as you say, increasing demand in the economy. But this is where you get it most wrong. Historically, increases in demand do not lead to an increase in prices. They in fact lead to an increase in output as competitors come into the market in order to profit from the increases in demand. This in fact lowers prices. As prices are lowered, output increases even more as demand increases, and the velocity of money increases due to increased transactions in the economy, balancing the equation again.

    There is zero reason why governments printing money would lead to inflation provided that governments used the increases for public works projects that paid the national average wage for such work. In fact, governments printing money and using it finance large scale public works could in fact control inflation much better than the current banking system. Of course the power could be abused, but at least we would have the ability to vote out the abusers, whereas we have no power to vote out the bankers who have abused their power so egregiously and caused a massive deflationary cycle combined with an explosion in government and deficit spending.

  61. angela May 11, 2013 at 8:45 pm #

    what if the government print more money, but doesn’t allow the prices to go up even if there is high demand? everyone will still make money and it will incentive others to create business to supply the high demand, or will give the opportunity to other business to sell more, as there will be no other choice for consumers than to get the brands or services that are a available.

    • Doug Foster June 7, 2013 at 8:37 pm #

      In a normal economy (ie., not a recessionary environment, but near full employment) the money supply can only be increased to the extent that we have the productive capacity to meet the increased demand that money would create . If we just print money and have more money chasing the same amount of goods and services, the price must go up (i.e., $10 chasing 10 widgets = $1 per widget, but $20 chasing 10 widgets = $2 per widget). If the government were to impose price controls, either a black market will develop or there will be shortages. As you noted, production could be increased to meet increasing demand, but the money supply can only be increased to the point that production can be increased to meet it. The government can’t control production, it can only print the amount of money necessary to keep prices level given the level of production that exists.

      Right now we are not at full employment, so by increasing the money supply the government is trying to stimulate demand and hence, production. It’s helping, but only slowly and very unevenly. But there is also a risk that if demand picks up too fast relative to production, the fed will need to reverse course and either slow the increase or actually reduce the money supply or inflation could get out of control. It really is a fine balancing act, and not as simple as it might seem.

    • Tom Nguyen June 30, 2013 at 1:27 am #

      Angela, When a capitalism government can control pricing? You need to have a basic understanding of economic, which seems you lack, to make comments on this topic

  62. George Cameron June 14, 2013 at 2:25 pm #

    why doesn’t the uk secretly print US dollars? that way we can get goods in without damaging our own currency.

    • Tom Nguyen June 30, 2013 at 1:23 am #

      You are a very smart man, George. There was nobody in the UK could think of this before…If the US currency can be copied then you will have real money and fake money mixed and it will make the US currency …. VALUELESS.
      Vey smart George, Very Smart. Your education level probably just a hair better than 1st grade.

  63. David Osborne June 14, 2013 at 2:29 pm #

    actually that’s a good idea. let’s do it.

  64. Raimo June 23, 2013 at 6:29 pm #

    The author of the page claims: “The reason is that printing more money doesn’t increase economic output in any way – it merely causes inflation.”

    A flawed claim. Only true, if you create masses of it, and give it away with nothing much in return.

    If gov prints money against labour, it does increase economic output. For example, if gov prints the money to pay wages to gov workers and build infrastructure.

    And further: money is constantly created without any economic output. Banks loan money against PROMISES to pay it back. However, often these promises cannot be kept, and people/businesses/countries get debted. Part of this is because of the system debts some people in anyway as it creates less money than debt, part of it because people just fail. And in addition, “funny money” is created all the time, papers, that the crerators claim have value, but do not. It is probably our biggest bubble waiting to burst.

    And further: If the issuer of the money, can regulate the amounts of money in circulation, like for example government with taxation, there should be no inflation any greater than with current rate of money supply increase.

    And further: the idea of money is not to create economic output. The idea of money is to make it easier to exchange labour. Money is a means of payment. It is labour that creates welfare and wealth, not money.

    Hence, the idea is to get people make labour. And hopefully, labour that benefits the society. If government issued money

  65. Alan July 18, 2013 at 8:27 pm #

    The dollar is not real money…it is only currency. The only reason why it has any value is because we have all decided to give it value. This article also fails to address the fact that the dollar is the world’s reserve currency. Which means whenever we print more dollars, the worlds reserves lose value. When reserves lose value…their exports become more expensive. The only way to counter this is to print more of your own currency to cancel out the effect. So when the US prints money…so must the world lest their exports become to expensive and cause a depression.


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