What are the consequences of a country that keeps printing out money?

[MVP]

For example, the U.S. is trillions of dollars in debt, so it just keeps printing out money to make deals with other countries. Wouldn't it be nice if you wanted to buy something, you just have to print out more money?

I know inflation would go up, but inflation isn't even viewed as being a problem as long as it is moderate. So are there actually any serious negative consequences to just keep printing more money?

 

[S1NN3R]

Money doesn't have any inherent value. It is simply pieces of paper or numbers in a ledger. A car has value because it can help you get where you need to go. Water has a value because it has a use; if you don’t drink enough of it you will die. Unless you enjoy looking at pictures of deceased national heroes, money has no more use than any other piece of paper.

It didn't always work this way. In the past money was in the form of coins, generally composed of precious metals such as gold and silver. The value of the coins was roughly based on the value of the metals they contained, because you could always melt the coins down and use the metal for other purposes. Until a few decades ago paper money in different countries was based on the gold standard or silver standard or some combination of the two. This meant that you could take some paper money to the government, who would exchange it for some gold or some silver based on an exchange rate set by the government. The gold standard lasted until 1971 when President Nixon announced that the United States would no longer exchange dollars for gold. This ended the Bretton Woods system, which will be the focus of a future article. Now the United States is on a system of fiat money, which is not tied to any other commodity. So these pieces of paper in your pocket are nothing but pieces of paper.

So why does a five-dollar bill have value and some other pieces of paper do not? It’s simple: Money is a good with a limited supply and there is a demand for it because people want it. The reason I want money is because I know other people want money, so I can use my money to others to get goods and services from them in return. They can then use that money to purchase goods and services that they want. Goods and services are what ultimately matter in the economy, and money is a way that allows people to give up goods and services which are less desirable to them, and get ones that are more so. People sell their labor (work) to acquire money now to purchase goods and services in the future. If I believe that money will have a value in the future, I will work towards acquiring some.
Our system of money operates on a mutual set of beliefs; so long as enough of us believe in the future value of money the system will work.

What could cause us to lose that belief? It is unlikely that money will be replaced in the near future, because the inefficiencies of a dual coincidence of wants system are well known. If one currency is to be replaced by another, there will be a period in which you can switch your old currency for new currency. This is what happened in Europe when countries switched over to the Euro. So our currencies are not going to disappear.

Then why else might we think that our money might not be of value to others in the future? Well, what if we believed our money wouldn’t be nearly as valuable in the future as it is today? This inflation of the currency causes people to want to get rid of their money as quickly as possible. Inflation, and the rational way citizens react to it, causes great misery for an economy. People will not sign into profitable deals which involve future payments because they’ll be unsure what the value of money will be when they get paid. Business activity sharply declines because of this. Inflation causes all sorts of other inefficiencies, from the café changing its prices every few minutes, to the homemaker taking a wheelbarrow full of money to the bakery in order to buy a loaf of bread.

The belief in money and the steady value of the currency are not innocuous things. If citizens lose faith in the money supply and believe that money will be worth less in the future economic activity can grind to a halt.
Money is essentially a good, so as such is ruled by the axioms of supply and demand. The value of any good is determined by its supply and demand and the supply and demand for other goods in the economy. A price for any good is the amount of money it takes to get that good. Inflation occurs when the price of goods increases; in other words when money becomes less valuable relative to those other goods. This can occur when:


The supply of money goes up.
The supply of other goods goes down.
Demand for money goes down.
Demand for other goods goes up.
The key cause of inflation is increases in the supply of money. Inflation can occur for other reasons. If a natural disaster destroyed stores but left banks intact, we’d expect to see an immediate rise in prices, as goods are now scarce relative to money. These kinds of situations are rare. For the most part inflation is caused when the money supply rises faster than the supply of other goods and services.

So to answer your question, money has value because people believe that they will be able to exchange their money for goods and services in the future. This belief will persist so long as people do not fear future inflation. To avoid inflation, the government must ensure that the money supply does not increase too quickly.

 

[dakota]

For a real life example of the effects of just " printing money". In 1922 the Weimar republic of Germany faced an economic crisis due to war repartions. As the public lost confidence in the German Mark the government started printing money to the point were people were paid twice a day, a wheelbarrow of cash bought a loaf of bread and 1 US dollar equaled 1 trillion Marks (1,000,000,000,000). This inflation wiped out the savings of the middle class and set the groundwork for the rise of Hitler.

 

[DrMetallica]

Macro econ my friend. There is a direct relationship with the money supply and inflation. Banks also control money supply by lending money out to people, lets say a man gives a bank $/£/€10. The bank keeps $1 as a reserve, and loans out the rest to a woman. Now how much money is out in the economy? The man has a claim to $10 plus the actual $9 the woman has. What happens if the man decides he wants his $10 back the next day? It's called a draw because the bank can only give him the $1 reserve, which f*cks up the economy.

Another thing that fcks it up is conterfeits, Germany during WWII produced beautiful replicas of the pound sterling and american dollars but never dropped it over the respective countries, although it would have seriously effected the war effort.

 

[A-Unit]

Re:

Inflation is an "invisible tax." It normally occurs on the BASIC elements of life...housing, energy, healthcare. In other consumer products, it's rare to see a car more expensive today than tomorrow. They jack the car with MORE luxuries, but a Honda accord in 2006, won't be more a car MORE expensive in 2009 if it's the same model and year. What will make it more expensive are the basic components of a car...steel, technology, copper, titanium, oil, plastics. These things rise price, the manufacturing cost go up, and walla.

Dollar devaluing is expected because it was engineered. Once the Money supply can be manipulated, so too are your own holdings of it subject to constant loss over time. Over a long-enough time period, it's important to convert your dollar holdings TODAY to assets of some kind for future growth. Gold is a store of value. Way back when, gold could buy a suit. Today, at the prices of $600+ per ounce can do the same. It's a store of value, subject to fluctuations, but ultimately, there's a fixed supply based on what's dug out of the earth. Converting it to bullion or coins is a good idea, at least just for a "piece" of your pie, to use down the road...say on a retirement home in 30 years. Or to buy a car. Or a suit. For the average american, more dollars in a bankaccount than monthly expenses isn't wonderful. It's comfortable, but I'd rather park it in assets, like gold, silver, solid equities, bonds, real estate, or collectibles. There's always the element of loss, but with money, that element is guaranteed AND invisible.

----------------------

And you're right. Based on the debts of WAR, SOCIAL SECURITY, MEDICARE, WEATHER ELEMENTS (like KATRINA), and PENSION FUND FAILURES, tax payers, and more importantly the generation below age 40 or so, face a TAX bill of $51 trillion plus, and it mounts EVERYday we don't have a solution for the above tax problems. Oh sure, you can call it chicken little, but the government can only INVENT money, they can't ERASE debt. If they keep spending dough, then they only logical way to pay debt is to...

-Cut benefits and spending
-Increase taxes

At the current projections, our economy would have to grow so fast and for so long for the gov to recoup taxes it's an impossiblity. We'd have to have growth of 5-10% per year, for decades for the increased tax revenues to service the debt. THIS why you see the gold shooting up, and it will keep going, as possibly high as $2,000 per ounce. Right now it's already at highs for several decades, and such things are "psychological," but once the mainstream public, those NOT in the know get a whiff, they'll be buying, since they'll have nothing else to use.

The other likelihood financially is a huge fallout, depression like, pummelling everything. Inflation would certainly occur and you could possibly get DEflation. Not a bad situation for those OK financially, positioned to buy assets.

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The release of a 50 year mortgage leaves a clue of what we're facing. Lenders are EAGER to give away cash, to keep the RE bubble flying high, but it won't. It's entirely possible we might face a nice, huge correction, esp in areas where prices have risen far faster than incomes can handle.

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Look around for a video on the creation of the Fed, it's not as COZY as you think.



A-Unit

 

[Le Parisien]

What everybody said was absolutely right and pretty exhaustive, may I just add one little thing:

If the US government starts printing excessive money to cover the debt, just like everybody said, all the consumers/businessmen/bankers etc basically verybody in the country will lose faith in the dollar.
But what's worse, all the countries/people around the world would lose faith in the dollar, so no one would want to be paid in dollars anymore. And not a single dime can be exchanged into another currency through "normal channels". Imagine the currency of the poorest coutry in Africa or Central Asia, that's how it will be like.

And it would be the end of the USA, the number one superpower as we know it.

Just for your information, in Russia, for some transactions, people would refuse to be paid in rouble, their national currency!!! Instead they want euros or dollars, because the rouble is very little "trustworthy". You don't want this sh*t to happen to the US, do you? The keyword here is trust, just like S1NN3R explained, all the modern monetary systems are based on beliefs/trust.

 

[Brian20o2]

To sum everything up: Money only has value as long as the masses believe it has value.

 

[Marlimus]

An excess suply of US currency on the international market devaluates the value of the American dollar against foreign currencies, reducing its buying power. However, this devaluation also makes US goods and services more affordable due to the more relatively favorable exchange rate.
In the long run, however, printing money to deal with debt has always been met with disastrous countries, and is usually the type quick-fix solution found in Third World countries where the local currency becomes practically useless as a result. If your allegation is true, then it is disturbing that the US gov is doing this.

The CCCP (Soviet Union) embarked on this strategy at one point, significantly lowering the value of the ruble until in rural areas the local poulace resorted to bartering, furthering the economic advantage of the US.

 

[PRMoon]

uhhhhh....it makes my money worth less then it was before. Lets blow up those damned money presses!!

 

[RedPill]

In a nutshell, leakage and inflation. Everything else is a consequence of those two items.

 

[Fender]

Hey guys, quick question while we're on the topic of economics. I know in the US, the federal reserve or summin' determine the interest rates.

But in the UK, the central bank (which is private- not controlled by the government) controls the interest rates. What basis exactly do they set the level of interest? Why not just make the interest rate 2394260% so everyone in the UK become slaves to the bank as they can't pay back their loans?

confused

 

[Le Parisien]

Hey guys, quick question while we're on the topic of economics. I know in the US, the federal reserve or summin' determine the interest rates.

But in the UK, the central bank (which is private- not controlled by the government) controls the interest rates. What basis exactly do they set the level of interest? Why not just make the interest rate 2394260% so everyone in the UK become slaves to the bank as they can't pay back their loans?

confused

Well, in general, the "Central Bank" in every country is NOT a regular commercial bank.
When was the last time you saw someone who had a checking account at the Central Bank.
Another good example is the ECB: the European Central Bank physically based in Germany. It determines the interest rate in the euro zone, just like what the Federal Reserve does in the US.

 

[diplomatic_lies]

Wouldn't it be funny if the US, with its $10 trillion GDP, only had $10 floating around in the entire country? You could buy a huge mansion for $0.01

 

[A-Unit]

Re:

The Fed isn't supposed to be Government-controlled. It's actually a separate corporation, that was created with its owner charter and whose owners are major shareholders. The Central government bestows powers not reserved by the Federal Government to the state. What makes the creation of money and collection of taxes illegal is the following...

(1) Anything not withheld by the Fed. Gov. is a power left to the state. In this case, money creation was sent to the corporation...illegal.

(2) The IRS was a creation of the Treasury, illegal once again. They're extensions, and they're "selling" away their powers, which, if not withheld by the Fed. gov, must be given to the state. In this case, that's imprudent, but it's the only way. This is why taxes are illegal and why people willingly pay them, because they don't know the Constitution, and thereby, don't know the laws that surround them.

If you moved to a new country, wouldn't you learn the laws, regardless of whether they were good or bad?

Say Country A allows the possession of pot, wouldn't that be nice to know? Or country B allows you to marry 2 women, or forbids sex before marriage? Not knowing laws in foreign countries can be mean imprisonment or death. Here, ignorant people still believe that the Gov wouldn't take away or ignore laws since the public doesn't care and doesn't pay attention.


----------------

They don't set a high interest rate because they know it would totally screw the plan up. People would default, as they did during the depression and just leave homes, possessions, and belongings behind. Or worse, as is the gas with high gas prices, begin to fight back. The ensuing violence is not what the 'elites' want. Rather, they want you just at the edge of your anxiety threshhold, because a country that is at the point exasperation, is one that produces and progresses. If it were lax, then nobody would work nearly enough to churn the massive profits we have.

The high rate of growth in our country is due to the breakneck pace of life here and the high rate of consumption. We make the most, and spend the most.



A-Unit

 

[Visceral]

If taxes are illegal then why are you punished if you don't pay them?

You hear rich people and corporations whining about having to pay income and other taxes like they were commoners, so I assume they've been fooled as well, and it's not just us who've been fooled.

 

[CLOONEY]

To avoid inflation, the government must ensure that the money supply does not increase too quickly.

Or decrease the money supply (raise Interest Rates).

Run a budget surplus.

Cant control that Oil Cartel though

Although I can see you are an economist S1NN3R!

 

[CLOONEY]

work nearly enough to churn the massive profits we have.

The high rate of growth in our country is due to the breakneck pace of life here and the high rate of consumption. We make the most, and spend the most.

A-Unit

Isnt the US economy struggling at the moment?

Hence the war to increase Gov spending.

Hence the low rate of interest.

You guys in the US spend the most, but I dont think you actually make the most (per capita). Countries like Lichenstein, Switzerland etc would have to be very very close, especially when factoring in exchange rate differences.

 

[diplomatic_lies]

The reason it's against the law to print your own money is it's a serious threat to the well-being of the rich and powerful.

It has nothing to do with inflation.

Are you a teenager by any chance?

If everyone could print their own money:

1) Nobody would work, causing production to collapse.

2) Because everyone has so much money to spend, but not enough goods are available to buy, prices would skyrocket. Bread would cost $1 billion per loaf.

You see?

 

[seanchai]

Plus self-printed money has no legitimate currency in a market, if everyone has their own. The division of labor collapses and nobody has anything. States rise again.

 

[RedPill]

When I was in college, I used to ponder this stuff endlessly. Really the only conclusion to be drawn from all this - the secret agendas, the conspiricies, and the truth which lies somewhere between the power of both the hype and the hidden - is that money talks.

Part of me has a burning curiousity that makes me want to spend my life working to join the ranks of the elite, only to find out what goes on behind the curtain, and maybe have a chance to be a part of it. But as time goes on, I'm turning more and more into an apathetic hedonist. I know the rabbit hole goes deeper, far deeper than I'll likely ever be aware, but now my attitude has taken a turn for the pragmatic. I'd prefer to make a small fortune, enjoy financial independence, travel a lot, have some cool hobbies, and of course bang hot chicks.

I'll always have my eyes and mind open to the fact that the operation of society is carefully controlled by powerful people behind the scenes. I'll always watch the watchers, and never accept the information I'm fed by the media. But at what point does one just say fvck it, and live exclusively for pleasure? Where does one find compromise between knowing the truth and improving their golf score? The more I work to build the world I want, the less I seem to care about joining the elite. After all, what's it matter at the end of the day?