My 11-year-old son asked me this question, and I didn't know how to answer him succinctly and clearly.
2006-11-25 15:58:23 · 10 answers · asked by ed_mauss 1 in Social Science ➔ Economics
Ed - a good answer is complex, but the short answer is, producing money like that would cause hyperinflation, because currency-creation in that case would be ramped up with no regard to economic fundamentals. The flood of new money into the economy would overwhelm production capability. Demand would mushroom, but supply would remain limited, so prices would skyrocket. Every store owner in the country would quickly realize that he can jack up prices and people are still buying things.
Government spending today does not create new money -- the government gets its spending money by taking money away from you and me (taxes) and by borrowing money in exchange for treasury bonds. Thus no new money is created, just the same money transfers hands, and therefore there is no flood of new money into the economy.
If instead the government engaged in a lot of spending that was NOT financed by our taxes or by selling treasure bonds to the public, it would necessarily create a lot of NEW money to do that, and that money working its way through the economy leads to more people having money to spend, a great increase in demand, and therefore the huge inflation. In the end the hyperinflation wipes out the benefit of people having more money, and leads to serious economic problems. Great historic example of this is post WWI Germany. Inflation was so bad housewives pushed wheelbarrows full of cash to the store to buy groceries. When they weren't looking, thieves would dump out the cash and steal the wheelbarrow! the result of all that? Adolph Hitler and WWII.
2006-11-26 03:40:37 · answer #1 · answered by KevinStud99 6 · 0⤊ 0⤋
The basic concept of the economy is supply and demand. If there is more supply than demand, the prices drop. If there is less supply than demand, prices rise.
A good example of this would be Pokemon cards. Certain cards are worth more because that are rarer, while other cards are worth less because everyone has them.
The same is true of the dollar. The dollar represents a denomination of worth backed by the government. If you print more money and what's backing it doesn't change, all you're doing is making the dollar worth less.
Using the Pokemon analogy, printing more money is the equivalent of printing more of the rare cards. Since more are available, the actually become worth less.
I may have simplified this too far. :)
~X~
2006-11-26 00:07:50 · answer #2 · answered by X 4 · 0⤊ 0⤋
It's pretty much the same as if I were to burn a dollar bill only reverse. Nobody would really notice, however the Value itself goes up if I burn it, because there is one less. The more there is of something, the less valuable it becomes. They can print money all day long, but since there is so much, after awhile the real value of a dollar bill would only be about 50 cents or so. If I were to burn one, that is making the value go up, because there is one less in the world. I hope that makes sense to you, cuz that is really the reason.
2006-11-26 00:09:48 · answer #3 · answered by rob_wants.a_beer 1 · 0⤊ 0⤋
the paper money we have is only as valuable as the things it can buy. If the government just printed tons of money..say to pay off its debts, ...it would not mean too much..it was not created as a result of an exchange of goods or services..nothing was sold to gain the money....it would be devalued..Thus money is mostly printed to replace damaged currency. Gee Im not sure an 11 year old would understand me either..
2006-11-26 00:07:48 · answer #4 · answered by chris f 3 · 0⤊ 0⤋
The u.s. government do reprint money all the time. It is because the changes over seas that create our problems . So if we created more money we would open the market more created a winfall over sea not here. The dollar bill to france was 50 to 1 now it is 20 to 1. Our dollar bill is going down with out created more money. But it created about 1000 new money every mouth.
2006-11-26 00:11:24 · answer #5 · answered by Anonymous · 0⤊ 1⤋
They do, when they print to much, you get inflation. when they take to much out of circulation, you get a recession. you'd probably be surprised to know that the Federal reserve is a privately owned bank, and has nothing to do with the government.
2006-11-26 00:25:06 · answer #6 · answered by Anonymous · 0⤊ 0⤋
A dollar bill represents gold. If there are more dollar bills printed then they will have less gold to back each one making it worth less.
2006-11-26 00:08:15 · answer #7 · answered by k24593 2 · 0⤊ 0⤋
I agree. THey should just make more money.
2006-11-26 00:09:48 · answer #8 · answered by misskenjr 5 · 0⤊ 1⤋
what makes you think they don't do it already
2006-11-26 00:07:22 · answer #9 · answered by The gr8t alien 5 · 0⤊ 0⤋
in fact they are printing as they please,
2006-11-26 05:01:02 · answer #10 · answered by IBE 1 · 0⤊ 0⤋