INFLATION – WHY CAN'T WE PRINT MORE MONEY?

PBA is right as far as domestic goods and services are concerned. In anything involving other countries (imports, exports, transfers, foreign aid), the value of every currency is determined in trading against other currencies. Traders judge a currency in terms of the credibility of the country’s fiscal policies (how it stays within its budget) and monetary policies (how its central bank refrains from “printing money,” among other things). There’s almost no wiggle room; ask anyone from Greece or Spain.

yekke2: Consider an economy where one can buy 1 kipa for $1.

Then, due to the government printing money, suppose there are twice as many dollars in the economy. Now, you would think that this is a good thing. In fact, it would be if the population grew and there were more valuable services created. However, in the absence of such modifiers, now $1 is worth half as much as before. So the same kipa now costs $2 instead of $1.

This is what happened in the Weimar Republic after WWI. They owed so much to other countries from the Versailles Treaty that they printed money to pay their debt. As a result, there was hyperinflation, which caused their currency to become virtually worthless. Aside from the economic consequences, the poor state of the economy made way for a young, charasmatic politician named Adolf Hitler Y”S to capture the hearts and minds of the German people. I don’t need to tell you the rest of the story.

Now, I assume you may be asking because of the talk about “quantitative easing.” In a recession with periods of deflation, it is possible to increase the money supply without causing inflation. 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 during a normal period of economic activity like our fictitous economy above, then it would cause inflation.

In the U.S., the question is really about number crunching. The United States is not experiencing deflation, but inflation is virtually 0. So the inflationary results of quantitative easing might not be so drastic.

This is how Obama thinks and this is the reason that America will collapse if he is reelected. The more money that exists the less value it has. If everyone has a million dollars than their is no chiddush in having it. Prices rise and the dollar looses it value.

While it works in the government’s favor in the short term to print money, in the long term it makes most Americans poorer as their hard-earned dollars purchase less. Additionally, inflating the money supply encourages reckless speculation in the stock market, destroys savings, causes prices to rise, and generally does great economic harm.

If the government prints its way out of the debt problem, you may avoid getting directly taxed for the costs of the debt, but you will pay for the debt whenever you buy groceries, gas, a house, or anything else. Life, and especially the necessities, become a bigger and bigger part of your monthly budget.

Shlishi (re earlier post), this is exactly Spain’s and Greece’s quandary. They ceded their monetary powers and responsibilities to the Monetary Union but retained all fiscal prerogatives, which they then used negligibly. A country with its own currency can restore equilibrium by allowing the currency to depreciate (or deliberately devaluating it, as Israel did when it almost went the Greek way in the early-mid 1980s). Greece and Spain cannot; all that’s left to them is budget-slashing.

The purpose of this site being what it is, I’d like to repeat a point I made on an earlier topic: building and running a sound economy has moral value, and for Jews in Eretz Yisrael it has Jewish moral value.