How does this work? Is it true that a country can print as much money as they like, to for example, pay off a national debt, and they don't need to raise taxes to do so? Why doesn't every country just do this? Inflation? How does inflation work and how would china feel if it got paid the money it is owed by america in funny money, won't that just bring the value of the money down so much that it wasnt worth borrowing it to them in the first place?
2007-10-04 20:34:32 · 3 answers · asked by jasemuk 2 in Social Science ➔ Economics
Printing extra money would create inflation because it would be used to bid up the prices of things. There is much less money in circulation than the value of all the goods and services purchased every year, so printing enough to pay off the debt would have a big effect. The US government owes half of it's debt to its own citizens and there are debts that people owe to each other, mostly to rich people. All these debts would be devalued by inflation not just what is owed to foreign nations. The immediate result would make the rich very very unhappy, and they have a lot of influence with the government, In the longer term lenders would want higher interest rates for years to carry the extra risk even after the inflation went away so it would hurt new borrowers too.
2007-10-04 22:02:20 · answer #1 · answered by meg 7 · 0⤊ 1⤋
I'm sorry, my information won't be very detailed but will point you in the right direction. A perfect example of why countries don't just print all the money they need is Russia after WWI. They couldn't pay back their debt they owed for the war so just printed the money. It was economically catastrophic. Their currency was essentially worthless. They still have not recovered from it.
Note: The country may have been Germany and it may have been WWII... :-) Sorry but my memory isn't so good with details, just the big picture.
2007-10-05 05:05:49 · answer #2 · answered by lild304 2 · 0⤊ 0⤋
If countries print too much money to cover debts, since there is more money than before, the value of that money is less...
IE. if gold could be made in the kitchen by everyone, do you think it would keep its value?
The decrease in value of the money causes the balance to shift with exchange rates to other countries...
most natably recently america's $.... £1 buys $2....
the change in exchange rates often leads to changes in import/export charges ultimately resulting in people working for the same money but for less value (see germany in the 1920's, people were taking their wages home in wheelbarrows the money was THAt worthless).
2007-10-04 20:41:32 · answer #3 · answered by Anonymous · 0⤊ 0⤋