Why Government Doesn’t Print so Much of Money?

If we think that the country could get richer by printing more money then it rarely works, because if all the people get more money, the prices hit up instead and people will need more and more money to buy the same amount of goods.

The recent studies about it speaks the same, which happened in Zimbabwe, in Africa, and in Venezuela, in South America, when they tried printing more money to try to make their economies grow. As they started printing more and more and their presses sped up rapidly, the prices in these countries rose faster until they started suffering from hyperinflation. Hyperinflation is when the prices rise drastically with greatest amount in a year. So, when hyperinflation hit Zimbabwe during 2008, prices rose up to 231,000,000% in a single year. So, for example, if a sweet or candy cost one Zimbabwe dollar before the inflation then it would have cost 231m Zimbabwean dollars after a year of hyperinflation. Now this amount of paper would be probably worth more than the banknotes printed on it.

In order to get richer, a country must make and sell more, be it goods or services, it has to increase its selling. This will in turn make it safe to print more money as people of the country will buy those extra things. But when a country prints more money without making more things, prices just fly high. If you could just think of those special vintage Star Wars toys from the 1970s, which are worth a lot of money. No one is making these models anymore. So even when everyone gets more money, this will never mean that more people can afford to buy them. Instead, the sellers will hike the price up.

Today, there is only one country that is able to get richer by printing more money and that is none other than United States. The country is already wealthy and most developed in the world as most of the countries buy and sell valuable things like gold and oil around the world to one another which are priced in U.S. dollars. So, if the United States wanted to buy more things anytime, it just needs to print more dollars. Printing more money would still make the prices of those things in dollars go up.

No doubt that poorer or other countries can only print their own currency and not U.S. dollars and when they print a lot more money, their prices will just hike up too fast and people will stop using money. Instead, they will ask to be paid in U.S. dollars or just swap goods for other goods. This happened in Zimbabwe, Venezuela and other countries which were hit by hyperinflation.

There is another fact too, which is dismal science says that it is not true that a country can never get richer by printing money. This can possibly happen if the country doesn’t have enough money to start with. When there’s a shortage of money, businesses can’t sell more, or pay their workers well and people can’t even borrow money from banks as they don’t have enough money either. So, in this case the printing of more money lets people spend more and companies produce more and ultimately, there will be more things to buy as well as more money to too.

Too little money makes prices fall which turns out bad. But also printing more money with limited production, makes prices go up fast, turning out worse.

Printing more money will not increase economic output, it just increases the amount of cash circulating in the country. When more money is printed, people will demand more goods, but it there are still same amount of goods in country, they will increase the prices of those goods. Simply, printing more money will cause inflation.

Let’s clear the confusion by giving an example, suppose an economy produces $10 million worth of goods, to explain more, for e.g., 1 million books cost $10 each. So now, the money supply will be $10 million. And when the government doubles the money supply, they would still have 1 million books, but now people have more money, hence, demand for books would rise, and in response firms would push up prices. The most likely scenario would be that if the money supply were doubled, we would have 1 million books which will be sold at $20. The economy is now worth $20 million rather than $10 million and the number of goods remains the same.

The relation between Printing more money and national debt is that governments borrow by selling government bonds or gilts to the private sector and bonds are a form of savings. People buy government because they assume a government bond is a safe investment. But this assumes that inflation will remain low. Now if governments print more money to pay off the national debt, then inflation could rise. This would ultimately reduce the value of bonds.

If there is increase in inflation, people wouldn’t want to hold bonds because their value is falling. Hence, the government finds it difficult to sell bonds to finance the national debt. They will have to pay higher interest rates to attract investors around the globe. And if the government print more money and inflation rises drastically, then investors will not trust the government, in turn making it hard for the government to borrow anything at all. Hence, printing money could create more problems than it solves.

No government can print more money to get out of a recession or downturn. The main reason for this is that money is just a facilitator of exchange between people in a trade. If goods were still to be trade with goods directly nobody would need money. Printing more money simply just affects the terms of trade between money and goods and nothing more than that and therefore, for all these reasons, government doesn’t print more money.

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