Why govt cannot just print currency & spend it, why they have to earn from taxes?

Question

I know theory says inflation rises, but how and any other reseasons?

Answer 1

The fact is the US government is really printing currency (mindlessly) and spend it all this while.

Well, actually it's not the government that prints the money, but Fed (Federal Reserve). The Fed prints loads of paper money and lend them to the US government, with interest. The government pays this interest with taxes collected from the people.

Now the US government uses this loads of printed money to import goods from foreign countries. Foreign countries that earn these dollars will use it to buy oil. Countries that have lots of US dollars leftover may use it to buy US government bonds, which also come with interest that the US government must pay.

Currently it is reported that the US government is having a deficit of several trillions of dollars. And this dollar value is supported only by international oil trade. If suddenly international oil trade is replaced completely by Euro, the US dollar value will instantly become 0 (zero).

That's why it was reported that the hidden reason US attacked Iraq was because Saddam Hussein planned to convert oil trade from US dollar to Euro, threatening the US flaccid economy.

Answer 2

THe government can technically print currency and spend it.
This may or may not lead to inflation depending on many circumstances.
1 if the economy is in a severe depression with unemployment over 10%, housing, stock market prices falling, general consumer prices falling ... The government should print currency and spend it. IT has historically done so in the 30's. And if it increase inflaiton then all thebetter since deflation is really harmful for indebted economies

2 if the economy is at war, all governments tend to print money and spend it, just because there is little activity to tax, however it does create inflation and a falling value of the currency.

3 If government prints money (indeed the central bank), it will lead to inflation only under some circumstances.
3 1 the government may simultaneously curb the lending activities of the banks, by enacting new laws barring "innovative" loans, by rising reserve requirements etc. Administrative measures may curb endogeneous money creation by the banks while the government increase the exogeneous money creation by the central bank. In that case there is no inflation.

3 2 if there is a credit bust, then banks will not lend anyway, so money creation by the central bank will only offset the money desstruction by private banks.

3 3 rich people holding lots of assets and having little debts will oppose any form of government creation of money. They prefer lending money themselves and make money on those lending activities. They want asset prices to remain high relative to consuming good prices (they want little inflaiton in goods, but lots in stocks and housing prices).
People heavily indebted will love money creation that reduces the burden of the debt.

Answer 3

Inflation is the only reason that you need.

I think the word 'inflation' confuses people, because what's really happening is that currency is being devalued, which in turn means you need more of it to buy goods and services. In reality, the cost of goods and services haven't really inflated. It's just that the currency has deflated.

For a simple example, let's say my house is worth $100 in an economy that has $10,000 of currency in it. My house is worth 1% of the total currency value.

The underlying value of my house doesn't change if the government prints more money. If it increases the money supply from $10,000 to $20,000, then my house will still be worth close to 1% of the economy or $200.

Printing money is a fools game and unfortunately some fools have been in charge of some countries that had the power to print money.

Answer 4

First, you must understand that in the United States (if that is the currency you are discussing) our money became a fiat currency in the 70s when the President signed a bill that made it where money was no longer backed by gold (or silver). If you have seen a $5 bill from the 50s you'd see that it was actually a silver certificate (that is it was backed by silver-worth $5 of silver). Now, that is not the case. Since then the value of the dollar has continually gone down.

"Earning" it from taxes? "EARNING" it? They deficit spend the currency paid in through taxes. If anyone else did that, they would be in major financial hot water!

Now that the election is over, tell your Congressperson to close the floodgates on earmarks and "pork barrel" spending- and actually work to truly "earn" the raise they gave themselves in recent years!

Answer 5

Inflation will rise if they print more money in the system because the more money there is in the system the higher prices rises. It as simple as that. Imagine u were selling something, say a pen for $2, and figure out that people have more money in their pockets, u will be tempted to increase the price for the pen. Dont forget the gov will have to pay for the print of the paper as well.

Answer 6

Because the country should back up the money in circulation with the produced material in order to really sustain its exchange value vis-à-vis other currencies besides what said, to check inflationary tendencies. The governments should also get the confidence of general public as well as the overseas lending bodies institutions and individual investors with sound economic policies in macroeconomic and fiscal parameters.

Answer 7

The lunacy is in people who don't comprehend this somewhat basic concept, who do not care to comprehend this somewhat basic concept, or who're waiting to declare "trillion" as though it have been monopoly funds which will final continuously as long as you create greater of it. to forget approximately this by ability of stating something approximately "Bush" is the two ignorant. The chilly problematic information are that the Republican controlled Congress, in 12 years from 1995 by way of 2006, had a smaller annual regularly occurring deficit than Obama and corporation are projecting for one month in 2011. And that grew to become into nonetheless way too rattling lots.

Answer 8

The simplest reason is that printing money causes inflation.

The supply of money is directly related to inflation.

look at examples like Germany before WW2, they just printed money to solve their problems, and it created more.

With no change supply, printing more money will only create inflation, as demand will increase which no increase in supply to offset it. That amount of money is not sustainable in that economy.

Answer 9

That's it - an increase in money supply decreases the relative value of each unit of currency, causing inflation.

Note: there is no such thing as an international gold standard. And many countries, the US included haven't had their own gold standard for many years.

Answer 10

there is something called international bullion. whenever a single amount of price printed. gold equal in the amount printed given to that internation bullion. which means total amount of gold u have, of that amount u can print currency of your country.