serious money question??

Question

OK, tell me why if we are all so poor, and our country is in such debt, why can't we just print more money? Can't the treasury do that and get us out of debt? Since I've never taken Economics, how does actually printing more money decrease the value of the dollar??Stupid question, but I'd love to hear the reasoning!

thank you all for explaining this to me. It now helps.

Answer 1

I'll simplify the others answers to make it sound easy, just for you hon. The US is only worth so much, and we base our money on what we have, not on the amount of green papers floating about. Debt is a part of life, and printing more money won't make you earn or have any more of it, since money is just a share of what you have of the total worth.

Answer 2

When the government prints more money it decreases the value of money, which then increases inflation. Money is like any other good, where when the supply of the good decreases the cost or value of the good (think about it this way: There are 10 basketball players who all need a ball, but only one exists. The price of the ball will be high, because all 10 players will be bidding against each other for the ball. However, if there are 15 balls, the price will be low because there are enough balls for players and each person who has a ball wants to sell it). Therefore, when the government increases the money supply (prints more money), the value of money diminishes.

This diminishing in the value of money causes the prices of goods to increase because money doesn't spend the same as it used to (compare the price of Coke 50 years ago vs. today), which is inflation.

Inflation in small amounts is not necessarily a bad thing, as it can be a sign of economic growth. However, when a government prints a large amount of money to pay debts, it creates a large influx of money and a large inflation rate, which hurts the economy.

Answer 3

Scarcity. For the same reason that outstanding quality diamonds sell for the outrageous prices that they do. If perfect diamonds were common, well distributed, and had subsequent low demand, they would be worthless. Because the of the limited nature of perfect diamonds and peoples desire (utility) for them the price increases if market forces are allowed to operate unimpeded. (For an interesting read, The Diamond/Water Paradox)

Likewise, if money was plentiful, and well distributed, the amount of work (labor/thought/resources) some one would be willing to exchange for it drops. Because money has a scarcity element, it retains value.

Suppose for a moment, everyone was given a briefcase with 1 million dollars in it. What would it be worth? If everyone had 1 million dollars, the impact of a $3 loaf of bread would not be the same. Maybe that baker is only willing to supply bread at the price of $50, because the cost of grain has gone up because more producers (cereal makers, livestock feed producers, bread bakers) have more money to spend on grain. This illustrates a trivial example of inflation.

Note: This is a very high level overview, it ignores the interplay of outside forces namely Purchasing Power Parity, the Productions Possibilities Frontier, Increasing Returns to Scale, almost every other micro-economics theorem. Still, it would however sound intelligent at your next cocktail party.

Open market operations (from the links below) expains in painful detail the answer to your question.

Answer 4

The US could simply print a bunch of money to pay it;s debts.
It would create a rather large increase in inflation, and make the interest rates go through the roof.

Answer 5

It reduces the money because a country is only worth so much "stuff". When you print more money, you are not increasing the value of that country. This would cause inflation because although you have more paper, they are worthless because the overall value has not increased. You just increased the amount of paper that is expressing that value.