Why do countries print money they don't have?

Question

I always ask myself-I'm not an economist!- who invented this cheating economy?
I would prefer the gold standard..

Answer 1

well if you prefer the gold standard then you obviously are not an economist, in a nut shell gold isn't worth any thing except what someone is willing to pay for it.
The commitment to maintain gold convertibility tightly restrains credit creation. Credit creation by banking entities under a gold standard threatens the convertibility of the notes they have issued, and consequently leads to undesirable gold outflows from that bank. The result of a failure of confidence produces a run on the specie basis, which is generally responded to by the bankers suspending specie payments. Hence, notes circulating in any “partial” gold standard will either be redeemed for their face value of gold (which would be higher than its actual value) — this constitutes a “bank run;” or the market value of such notes will be viewed as less than a gold coin representing the same amount.


One of the foremost opponents of the gold standard was John Maynard Keynes who scorned basing the money supply on “dead metal.” Keynesians argue that the gold standard creates deflation, which intensifies recessions as people are unwilling to spend money as prices fall, thus creating a downward spiral of economic activity. They also argue that the gold standard also removes the ability of governments to fight recessions by increasing the money supply to boost economic growth.

Gold standard proponents point to the era of industrialization and globalization of the nineteenth century as the proof of the viability and supremacy of the gold standard, and point to the UK’s rise to being an imperial power, ruling nearly one quarter of the world's population and forming a trading empire which would eventually become the Commonwealth of Nations as imperial provinces gained independence.

Gold standard advocates have a strong following among commodity traders and hedge funds with a bearish orientation. The expectation of a global fiscal meltdown, and the return to a hard gold standard, has been central to many hedge financial theories. More moderate goldbugs point to gold as a hedge against commodity inflation, and a representation of resource extraction. Since gold can be sold in any currency, on a highly liquid world market, in nearly any country in the world, they view gold as a play against monetary policy follies of central banks, and a means of hedging against currency fluctuations. For this reason they believe that eventually there will be a return to a gold standard, since this is the only “stable” unit of value. The fact that monetary gold would soar to $5,000 an ounce (almost 8 times its current value) may well influence the advocacy of a renewed gold standard, as holders of gold would stand to make an enormous profit.

Few economists today advocate a return to the gold standard, other than the Austrian school and some supply-siders. However, many prominent economists are sympathetic with a hard currency basis, and argue against fiat money. This school of thought includes former US Federal Reserve Chairman Alan Greenspan and macroeconomist Robert Barro. Greenspan said in 2000, “If you are on a gold standard or other mechanism in which the central banks do not have discretion, then the system works automatically. The reason there is very little support for the gold standard is the consequences of those types of market adjustments are not considered to be appropriate in the twentieth and twenty first century. I am one of the rare people who have still some nostalgic view about the old gold standard, as you know, but I must tell you, I am in a very small minority among my colleagues on that issue.” [7] The current monetary system relies on the US Dollar as an “anchor currency” which major transactions, such as the price of gold itself, are measured in. Currency instabilities, inconvertibility and credit access restriction are a few reasons why the current system has been criticized. A host of alternatives have been suggested, including energy-based currencies, market baskets of currencies or commodities; gold is merely one of these alternatives.

The reason these visions are not practically pursued is much the same reason the gold standard fell apart in the first place: a fixed rate of exchange decreed by governments has no organic relationship between the supply and demand of gold and the supply and demand of goods.

Thus gold standards have a tendency to fall apart as soon as it becomes advantageous for governments to overlook them. By itself, the gold standard does not prevent nations from switching to a fiat currency when there is a war or other exigency. This happens even though gold gains in value through such circumstances, as people use it to preserve value; the fear is that fiat currency is typically introduced to allow deficit spending, which often leads to either inflation or to rationing.

The practical difficulty that gold is not currently distributed according to economic strength is also a factor: Japan, while one of the world's largest economies, has gold reserves far less than would be required to support that economy. Finally the quantity of gold available for reserves, even if all of it were confiscated and used as the unit of account, would put the value of gold upwards of 5,000 dollars an ounce on a purchasing-parity basis. If the current holders of gold imagine that this is the price that they will be paid for giving up their gold, they are quite likely to be disappointed. For these practical reasons — inefficiency, instability, misallocation, and insufficiency of supply — the gold standard is likely to be more honored in literature than practiced in fact.

In 1996 e-gold launched a privately issued digital gold currency system, attempting to replicate a gold standard and create an alternative global monetary system. Other digital gold currency systems soon followed, such as e-Bullion and GoldMoney.

In 2001 Malaysian Prime Minister Mahathir bin Mohamad proposed a new currency that would be used initially for international trade between Muslim nations. The currency he proposed was called the Islamic gold dinar and it was defined as 4.25 grams of 24-carat (100%) gold. Mahathir Mohamad promoted the concept on the basis of its economic merits as a stable unit of account and also as a political symbol to create greater unity between Islamic nations. The purported purpose of this move would be to reduce dependence on the United States dollar as a reserve currency, and to establish a non-debt-backed currency in accord with Islamic law against the charging of interest

Answer 2

Ah... ok. This is one of those SUPER tricky questions. I had too read it a few times before I could work out what you were really asking.

Ok... Two types of currancy modles. The "gold standard" and the "linked standard". In both standards there is a lie contained. Each system releys on the the shere "beliefe" that one paper dollar will get you one dollar's worth of stuff. In the gold standard you are supposed too be able too exchange that for one dollar woth of gold. But you can't eat gold, can you? So... you have too now accept two ideas with the gold standard. You have too beileve that your paper dollar is worth one dollar's worth of gold and you have too believe that gold is a very important commodody.

Let's face it. Hungry man faced with a choice of a few grains of gold dust or a loaf of bread? What do you pick?

Well... too simplify the lie everone just kinda "abandonded" the gold standard and instead "linked" the value of a dollar too the ecconomy of the issuing country.

The value would then be linked too the "gross domestic product".

It then falls too the governments of each of the countries world wide too regulate the ammount of currancy that is in circulation too accurately reflect the assossiation of one note being equivelent too one note's worth of goods and services. ie One dollar will buy one dollar's worth of food. Too much currancy and the dollar is devalued. That means it will actually take two dollars too get you one dollar's worth of food.

Too much and it's over valued. One dollar get's you a HUGE feast of food.

If you adjust the value too far in iether direction it will cause people too loose faith in that ecconomy... thus... the belief is broken and the money is worthless.

Who invented that... well... it goes WAY WAY back in time but I can answer why with quite a bit of ease.

If you go too a market place lugging around loves of bread and you want too use them too trade for things like tools and clothing and farm animals you will first be faced with the problem of "Crappit! That's a lot of bread!" Next you are faced with the problem of the tool maker really doesn't want twenty loves of bread in one go because he'll never be able too use it before it goes off. Just so happens that twenty loves of bread is what a new plow is worth... You can see where this is going. Currancy makes society easy.

That's how currancy works.

Hope this helps.

Answer 3

a rustic might print funds for here reason one million.Politically less demanding to print funds to fund social responsibilities than to develop taxes or decrease spending. 2.Wipe out contemporary debt with new funds 3.A circulate of wealth from the destructive and center type to the elite.

Answer 4

Politicians love being able to print their own money...

Answer 5

So they can continue to spend and put us all in hock.

Answer 6

Because they are all in debt, and they want more to spend.