To subscribe to this RSS feed, copy and paste this URL into your RSS reader. It can be done. PS: about deflation. 开一个生日会 explanation as to why 开 is used here? In general, you can count on the the principle that if you, as the government, try to play too many games with people's money... well, people aren't stupid; they will eventually catch on, and adjust their behavior to compensate, and then you're right back where you started, but with less trust. In that case they have three options: increase taxes (which has the risk of scaring off multinationals, putting small companies out of business and driving the economy into a recession) This is real money that get's credited in to people's bank accounts to purchase real goods and services. In 2010, my wild guesstimate of those two numbers, totaled, is about $2 trillion. This country with the world’s largest oil reserves decided nationalising their golden goose would finance their governments wild excess. Paying interest on debt reduces tax burden. The U.S. government and its counterparts all over the world are spending trillions of dollars in response to the COVID-19 crisis, borrowing trillions of dollars to do so. Will grooves on seatpost cause rusting inside frame? Most people, even in rich countries, have a negative net value. Because it’s so cheap to do … Best case it is theft of other people’s property. Answer: The way I describe it is that the monetary system in the USA is bank centric. To get richer, a country has to make and sell more things – whether goods or services. You are just not looking at them. New money makes old money worth less. If everyone did actually ask for their money back at once, the illusion of the extra money created by this process would collapse, and the bank would go bust. So now put two and two together. The Government doesn't borrow money. Suppose we could do as you suggest, and simply take the $8 to $9 trillion that the US owes to anyone besides its own trust funds and pay back all the bondholders, here at home and abroad. Why does a government borrow money? It's easier for them, they don't have to explain it to voters (only to economists), and it gives them more direct control without any messy political considerations like which programs to expand or cut. If the money supply were left in their hands, we would end up with a shrinking money supply and rapid deflation. Now, you can dream up reasons why the system should be the way it is and why it is an acceptable system. This makes it safe to print more money, so that people can buy those extra things. Creating debt is simply dumb — it creates no more inflation than creating money. This question is raised in the movie Money as Debt (at time index 29:00). Unfortunately, for every actual dollar currently out in the world at the moment, there would suddenly be about four. Why the pandemic is forcing millennials to move back home with their parents, Read Sounds good, right? ‘All my love, Elliot’: ‘Umbrella Academy’ actor comes out as transgender, Read Why is the pitot tube located near the nose? Why is a third body needed in the recombination of two hydrogen atoms? So, what should money creation be based on? Back to basics. Printing money – Why does the government print money? Consider the case of the United States. In economic discussion, you may often hear that a government is "printing money" and then picture sheets of hundred dollar bills coming off a printing press. One last objection to be dispensed with. What would people do with that money? Biden’s economic team faces unprecedented crises in shift from Trump, Watch The federal government in a sense does print its own money when it spends money and doesn't collect it in taxes, so in a sense the national deficit is just a measurement of total government printing. We had to physically give China 1 trillion dollars for them to be able to purchase 1 trillion dollars in securities. You could look it up. But since no bonds are of longer than 30 years duration (“maturity”), let’s imagine a gradual, 30-year process. And yes, I believe both can create inflation. The Primary Dealers. Because the goverment has a national wealth. Now, inflation can come into play afterward, if the Fed decides it needs to maintain "easy money" policies to stimulate the economy (because taxes are too high because we're paying off the debt, or because we've crowded out smaller borrowers, or something). This is in fact a very important reason: it applies to the entire Eurozone. Once-fringe ideas in economic theory are now nearly official policy as government borrowing surges and the Federal Reserve signals it could buy unlimited debt. A second Nobel Laureate with similar views was William Vickrey. "Most countries operate an inflation target which does seek to close this feedback loop and keep money in line with production" is incorrect. Because private banks rule the monetary system the rest of us, including the govt, are rendered as users of the private deposit system. And if they do, I don't believe that creates new money. Question: Why does the federal government borrow money through issuing bonds when they can simply create it via the “printing press”? Randomly printed by the government when they feel like it? What are the Primary Dealers? My answer is that when confronted with the obvious, the most common human reaction is to seek reasons for it, because things have to be right. And then you end up like Zimbabwe, with 10-trillion dollar notes that are worth $5 today and a nickel next week. People lost sight of good lending practices. How to avoid boats on a mainly oceanic world? Using production trends, determine projected production for the period and assign a $ value. ), (The downside of too much of this sort of borrowing is that it "crowds out" other borrowing, which may harm the economy. But don’t you see the difference? For one thing, if bank deposits stay flat then no new money is being created. What do you think happens when the federal reserve buys $XX billion in treasury bonds? While we currently run a deficit, there is a large lobby within the US who are incredibly anti-deficit, and are fighting against this for no good reason. @Ganesh: Indexing money on production is not necessarily circular. However, according to this movie, money is created not only by printing it but rather more so by borrowing it (watch the movie for the details). Our current money supply is utterly disconnected from production fundamentals. Why did congress turn its monetary policy over to the Federal reserve (a group of unelected and unaccountable individuals with strong ties in the banking industry) and does not even bother to conduct audits to know how your money is actually managed? If they printed money, then they'd be devaluing the money of everyone who had saved or invested, whereas if they borrow money and use taxes to repay it, the burden falls more evenly across the economy and doesn't disproportionately penalise certain sets of people. Do PhD students sometimes abandon their original research idea? Paul Solman: Interesting question (or “comment”). Is there a word for "science/study of art"? Question: Why does The U.S. government borrow money and thereby create debt when it has the sovereign and Constitutional right to create whatever money we NEED? The US, for instance, owes around $5.6 trillion to a number of its own federal agencies, which accounts for nearly 30% of the total federal debt. Is inflation a good or bad thing? The government borrows because it spends more than it receives in revenue, which comes mainly from taxes. (When printing money, one doesn't need to pay interest).” Good question. The dominant theory is "It just happened, it's nobody's fault and nobody designed it that way and to think otherwise is very bad because it makes you a conspiracy theorist, and conspiracy theorists are nuts. SO the answer to the question is the government wants to control the rate and perception of inflation that is why they borrow instead of print money!! Dec 01 @Ganesh: What does the US produce, these days? Can you use the Eldritch Blast cantrip on the same turn as the UA Lurker in the Deep warlock's Grasp of the Deep feature? Perhaps I will visit a library, they often have JSTOR access. The bond market is used for an advanced way of controlling the demand for this printed money. In a sense Tucson is right. The housing bubble had multiple causes. Firstly, printing money just collapses economies generally. Most of the debt doesn’t come due for years. The demand for loans is impacted both by the rate itself and the bank's willingness to lend. Does this strike you as the logical result of a fair and balanced economic system? Who would lend money to / invest in a small business, if the government is paying good money and there's almost no risk at all?). @Ganesh: very interesting, so can we say that the bank system is basically generating always inflation? Bonds are a form of saving. The government could actually do either one to expand the money supply as necessary to keep up with rising productivity / an increased labor supply. What prevents a large company with deep pockets from rebranding my MIT project and killing me off? It's a no-no as it quickly devalues the currency and makes it far more difficult to borrow in the future, an entire generation will remember getting burned by it. Money is supposed to represent production. If your bank account only has 10 dollars in it, then you only have 10 dollars. For deflation to actually occur, the volume of production should increase faster than the volume of money (per definition). They have the entire literate and qualified person advising them to keep printing money i.e. That doesn't happen when money is created by the bucketload, and when it is contrary to the best interests of the powers that be. Let’s suppose the United States decides to increase the money supply by mailing every man, woman, and child an envelope full of money. Essentially, the government borrows so that it can enable higher spending without having to increase taxes. No one is making any more of these models. Hey, we save the interest payments, which amounted to nearly $400 billion last year! People buy government because they assume a government bond is a safe investment. @Marco: not really, it's much more complicated than that. ELI5: Why does the government borrow money from the Fed at interest when they have the authority to print it themselves? However, this assumes that inflation will remain low. Why do governments want some inflation? The government can borrow huge amounts of money because it has a big capacity to pay it back — because it's got millions of taxpayers giving it money every day. The danger is in failure to properly con. Numerous leading economists, including a couple of economics Nobel Laureates have asked the same question and concluded that borrowing can be dispensed with. We don't like it when things suck. Sorry, but that not the case. The new orthodoxy was that governments should instead rely on monetary policy. You really haven't looked where your stuff come from, have you? No. Learn more about Friends of the NewsHour., MAINTENANCE WARNING: Possible downtime early morning Dec 2, 4, and 9 UTC…, “Question closed” notifications experiment results and graduation. Yes, you read right: .25 percent! As people rush to get rid of the old money before it loses too much value, those words can fuse into WORTHLESS. Look at the facts already in your possession. Why do you think that is? The problem with making that target 0% is that then whenever you undershoot you'll have deflation which has its own problems. In the case of the US, printing money involves convincing politicians to spend it. Index money on production and you have a sound system. When 50% of treasury bonds are bought by the federal reserve, what do you think happens next? Why do governments borrow money? So it makes sense if you think about how the math works in the real world. Question: Why does The U.S. government borrow money and thereby create debt when it has the sovereign and Constitutional right to create whatever money … Building algebraic geometry without prime ideals. You want to stop the Treasury from BORROWING. Many entrepreneurs aren’t aware of this surprise benefit … rev 2020.12.2.38095, The best answers are voted up and rise to the top, Personal Finance & Money Stack Exchange works best with JavaScript enabled, Start here for a quick overview of the site, Detailed answers to any questions you might have, Discuss the workings and policies of this site, Learn more about Stack Overflow the company, Learn more about hiring developers or posting ads with us, I like this answer. Dec 01 after US recession of 2008. Yes - Simply put, printing money is called "monetizing the debt" and would result in some nasty inflation. A third economist with similar views (of Keynes’ era) was Abba Lerner. When banks "borrow" money (i.e. Stack Exchange network consists of 176 Q&A communities including Stack Overflow, the largest, most trusted online community for developers to learn, share their knowledge, and build their careers. If inflation DOES rise and exceeds 2.5 percent, the Treasury will actually be MAKING money on its debt, since it’ll be paying back with dollars decreasing in value by more than the interest rate. When the Fed wants to "print money," it lowers the target for the federal funds rate. In contrast when governments borrow money, the loan isn't repayable on demand, it has a fixed maturity and the money is only repaid at the end of that period (plus interest at defined points during the period). Would it be possible for a self healing castle to work/function with the "healing" bacteria used in concrete roads? take deposits), it does effectively create money because the depositor expects to be able to get the money back at any time, but the bank assumes that most won't actually do this and lends out most of the money to other people. In other words, inflation: everything suddenly quadrupled in price.

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