Wednesday, June 10, 2009

PROBLEMS ON PRINTING MORE MONEY


If the government starts printing more money it merely causes price increases. The reason is that printing more money doesn’t progress economic output in any way. The cost of goods would rise; it would have to increase benefits and wages in line with price increases. Government spending would also rise because of price increases. Borrowers would need higher interest rates to buy bonds. Printing more money would not solve the problem but will create additional problems of price increases.


Printing more money is what Weimar Germany did in 1922. To meet associated reparations, they printed more money; this caused the hyper price increases of the 1920s. The hyper price increases led to the collapse of the whole economy.


In a recession with periods of reduction, it is possible to increase money supply without causing price increases. This is because the money supply depends not just on financial base but also velocity of circulation.

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