Printing money

Australia
April 20, 2012 10:23pm CST
This may be a little confused, as I don't have economic qualifications, and I'm to some extent thinking it out as I write. We'll see. There are two forms of printing money, one called quantitative easing and the other monetisation. The first requires the central bank to buy large amounts of bonds and debts from banks, with the idea that the banks will lend the money so gained to small business and individuals, thus stimulating the economy. This is currently being done in numerous countries, including the US, Britain, and Japan. The second means creating bonds which are "sold" to the central bank, and the money so raised then spent by the government. This has the effect of lowering the value of the currency in international markets, and the more you print the bigger the fall in international value. The first disadvantages the debtor (the poor) and advantages the creditor (the rich); the second reverses that, which is, of course, why it is rarely used, since the rich control most governments. I have been puzzled for years as to why it isn't done. If you create the money and then spend it on government funded superstructure projects and services like health, education, emergency services (including police), the result in both cases is a big increase in employment. It makes imports immensely more expensive, thus to some extent countering the sweat-shop wages paid in the countries labour is currently being outsourced to, and makes exports cheaper. If imports are much more expensive it stimulates the creation or re-building of local businesses which have currently become non-viable because of that very same outsourcing of labour costs. It effectively delinks the economy from the global monster and almost turns the home currency into a "local" currency that can only be spent at home. In fact that may even be a formalised way of achieving this process, inserting a large amount of a second purely local currency into the market place. There is a lot of research into the capacity of such local currencies to stimulate the local economies (Google Worzl in Austria). A former Prime Minister of Australia, the one who embraced economic rationalisation and turned the left wing party into a clone of the opposition, was hugely concerned that without this action Australia would become a "banana republic". So what? It's only a perception, not a reality, if the local currency is stimulating business and paying for superstructiure and services and creating significant employment, and allowing its citizens to live normal, productive lives. So what if the currency can no longer buy imported goods? That stimulates local manufacturing. So what if we are no longer a player in the international community? - we have an inflated sense of our own worth in that respect anyway in Australia. The rich and the Right will scream that it devalues their wealth. Yes, it does, and so what? They'll still be much richer than their fellow citizens, still be able to afford their expensive imported goods, still able to live in luxury in their own country. My heart fails to bleed for them. Lash
1 person likes this
7 responses
@debrakcarey (19925)
• United States
21 Apr 12
I don't understand much about the banking system, but I'm trying to learn. I do know that it is a crooked system (in my estimation). I cannot speak to what you have written, whether it is true or not. But I can say that whoever conrols all this, controls private property and thereby controls people. http://www.thrivemovement.com/banking-history-timeline-follow-money And I found this quote by Jefferson: I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. Seeing what is going on in the global markets, and in America in particular, I tend to agree with him.
• Australia
22 Apr 12
I don't necessarily disagree with your estimation of the banking system, but my suggestion involves only an interaction on paper between the Government and its own subsidiary, the central bank, Fed, treasury, whichever is relevant to the situation. The porivate banking system gets no part of this pie directly, only indirectly through the increased savings of now employed people and busier businesses. Lash
@debrakcarey (19925)
• United States
22 Apr 12
But I've been told the Federal Reserve is a corporation and not answerable to any government oversite whatsoever, is that not true?
@debrakcarey (19925)
• United States
22 Apr 12
I have also heard that the US debt is being 'moneitzed'. So, what does that mean? Go easy on me with the big words. lol I'm learning, remember.
@matersfish (6311)
• United States
21 Apr 12
I'm far from an economist, but just the common sense angle of this causes my head to spin around a little. To simplify it for point of this response, just say that a government went crazy printing money and then, I guess, just handed it out. Of course, the value would have to be set on nothing but a created standard. So say the average person has $100 -- let's give them $1,000. Let's make the wealth of a buck the wealth of 10 bucks. The average person, the little business, the mid-sized business, the farmer, the road worker, the government worker, everyone on down the line -- wealth has been increased; they've all be given printed money. The nation has new wealth. But is it wealth? What's there to stabilize prices so that a gallon of milk doesn't go from $5 to $50? With the saturation, prices will inevitably go up. Effectively, the money becomes worth a lot less. It's like Lobster Salad in the Hamptons: Only people with money can afford it, but it's still just lobster and mayonnaise. You'd have to interfere on a massive level to make sure no one jacks up the cost of anything. If they do, well, you could have skipped an entire step in printing, saved some trees, and just decreed that everyone must drop their prices. There's also threat in the artificial nature of the public sector being propped up by this money. As much as we all need public works, there's no real return on roads and bridges and such. I'm guessing employment wouldn't just be a quick shot; you're planning on making it gainful, long-term employment. I suppose the idea is that money then circulates massively, everyone able to spend in the economy due to their wealth. But that leads back around to the previous point. It'd be almost like gouging. It's 3:15am here and I'm having trouble putting thought to words with little sheep dancing behind my eyes. But to quarantine an economy, inflate it tremendously, and then let that exist within itself like some sort of economic perpetual motion just seems to me as if it's going to balance out back to how it was. The reason most people are "poor," I'd argue, isn't necessarily because they can't reach down into their pockets and pull out anything. Some people are seriously that poor, no doubt, but I'd venture a guess that most simply cannot afford the cost of living. If government were to decree any such thing like a massive flood of printed money, they should just as soon decree that everyone's debt is wiped out, that all businesses must give goods to the public sector for public jobs, that everyone be entitled a job, and that prices on X are not allowed to exceed Y. It sounds good on its face, but it's still rather artificial. It just seems to me like it'd balance out very quickly. Except now, $10 is what $1 used to be. And while I suppose shutting the borders, so to speak, would stave off Zimbabwe for a while, I don't see how it'd be avoided, because anyone willing to do this the first time would do it the second, and the third, and the fourth, and so on, every time things started to go back out of whack. Or maybe I'm just too tired to understand this at the moment...
• Australia
21 Apr 12
I'm too tired to do it justice, but I will say that there is a fallacy in your starting point: I didn't say give the money to people, it would come to people in the form of wages for productive work, in building superstructure, or looking after people's health, or education etc. People would be earning no more than they are now and inflation really shouldn't become an issue, the only difference is that their money will not buy imported stuff as cheaply as before. And the new money would be set at par with the old money, I don't know Where you got that idea from. I'll look at this again in the morning. Lash
• Australia
22 Apr 12
The reason that even those countries which aren't obsessed with killing off welfare can't afford these things is that their income doesn't get anywhere near the requirements, and so they have to wheel and deal and leave some things undone. Over time this destroys whole service industries, and the society suffers through poor education, poor policing, and poor health care. The only way governments have of managing the problem is either to ignore it or borrow the money, and that is, of course, why there is an incipient crisis with some countries already unable to even service their international loans, let alone pay them off, and thus can't borrow any more. What monetisation does is to allow a government to lend itself the money by creating an artificial increase in the money supply. This is nothing unusual: money has been artificial at least since we went off the gold standard. The bonds the government create and then sell to itself by way of the central bank/treasury exist only in a computer file, but allow the government to print money and distribute it through the projects I suggested. The few examples of limited monetisation I looked at suggest that inflation would not be a problem. I thought again about the rich: their wealth is devalued, yes, but only in relation to the rest of the world, and so, as I said, they remain relatively rich within their own country. To the ordinary citizen it means employment and spending money, which stimulates more employment. But the problem is that this process mainly helps the poorer and middle class sections of a society and not the rich, and there's not a right wing government in the world that could consider it. Monetisation has been used in the past, but perhaps not at the rate that I am suggesting. A full budget should be worked out including all the wants as well as needs, and the deficit calculated. The government should then expand this over a three or four or five year period, and create bonds enough to cover that period's estimated deficit plus 100%. Over time much of the money will come back in the way of various taxes, and the welfare bill (for those countries which bother with welfare) will drop dramaticaaly. In the first couple of years, however, I think we would have to be prepared for some hard times, but better we have temporary hard times now than absolute hard times later. lash
• Australia
22 Apr 12
I forgot to mention that I would see the creation of a government Development Corporation tasked with the job of lending money at low interest to would-be small business owners with good business plans and who can demonstrate the knowledge and drive to have a chance of succeeding, as a very workable idea. Of course people obsessed with small government will throw their hands up, but that's life. My concern is purely with the large mass of people who are inherently disadvantaged by Viral Capitalism as it currently operates; I frankly don't give a hoot for the rich. They spend a lot of time and money on promulgating the myth that their profits will "trickle down" to the lower classes, but 100 years of study by social scientists shows incontrovertably that there is at best a very slow drip down, and so few people benefit from this that it may as well not happen. Lash
@crossbones27 (14328)
• Redlands, California
21 Apr 12
I do get and agree with your point. The only part is that many countries need vital resources that only certain counties have for medicine and stuff like that. That is the only reason I can see why you would want imports to be fairly inexpensive. It would be nice if every country would take care of their own people instead of being more concerned with their status in the world as a country. I get so upset that the US always has to be the top dog of everything. Yes it may bring us fortunes that many other countries do not get to enjoy but it also comes with great responsibility. Lately it seems to be a burden which is to much for us to handle, due to inept leadership. They do it for the wrong reasons. It never seems to be about improving things for betterment of mankind but rather how much money and power we can obtain so we can say it is for the "betterment of mankind." I think friendly competition is good as it pushes us to be better people over all, but we have competition that brings out the worse in people. We use competition to hold people back because we just want to say we have the most material things in life and obtain social status. So we lie manipulate and cheat to get ahead. The sad thing is it does not have to be this way. People cannot just comprehend working for something else than material things. The only thing you need material things for, is to make improvements in tools that are going to lead to a better life. You do not need 30 cars when 28 are just going to sit their for looks. My philosophy is if I am going to buy something it better have a purpose to make my life a bit easier and not just be something that sits their as some kind of trophy.
• Australia
22 Apr 12
It's that very obsession with money that means the only countries that might ever do this in the form I am suggesting are Third World countries with little to lose. Western Capitalist countries would never get it past the money people. Lash
@mythociate (13759)
• Oklahoma City, Oklahoma
30 Jul 12
'Quality bricks are made of quality sand; for quality big-answers, put together a lot of quality small-answers.' The small-question? What is value (money, whatever) WORTH? Small-answer: whatever 'people' GIVE to get it. another small-question: what do we want 'people' to give us? That small-answer comes in several different shapes, but I think they can be summarized in 'time spent obeying us (as we give them value).' They are to use that money to procure living-supplies (nourishment, shelter, informed & peaceful minds, etc). If we produce the living-supplies, they trade us their money for them ... circle-of-life ... The currency is not something that is 'made by work.' The currency is 'traded for something of value' (whether it's something given to the bank that is 'worth' money, or the "ownership" of property held as collateral on a loan etc.)
@GemmaR (8527)
21 Apr 12
I understand why the government are doing this because people don't have enough money at the moment, so it might seem as though it makes sense for them to print more of it and let people have a little bit to spend, however looking back over history it is obvious that things like this don't work, and for this reason it is not something that the government should have ever done. This country is in enough of a state at the moment without doing things like this to push up the rate of inflation at the same time like they seem to be doing at the moment.
• Australia
22 Apr 12
As far as I can see, and I'm open to conviction, whenever anything like this has been done on a big scale it has been hedged about with precautions to protect the rich, and so has never had much effect on the classes I am trying to target with this idea, the poor and the middle class. Most Western or industrial governments define "fixing the economic crisis" as meaning "keeping the status quo safe". Lash
@elmiko (6640)
• United States
21 Apr 12
when countries print more money it always makes things higher in any country. domestic goods are never cheaper when this happens. prices have to increase because commodities can't be created like money can. when governments print money to fund an economic recovery i consider a hidden form of taxation because it is. for every dollar i pay tax is added to it and over the past 5 years things have really gone up. as far as i'm concerned my government doesn't need to increases taxes because things costs so much more. there does need to be higher taxes for the super rich though as through investments can actually use inflation to their favor.
• Australia
22 Apr 12
In fact the few cases I could find of monetisation, inflation was not a problem. I have no problem, incidentally, with a government poutting in place a prices tribunal in case the greedy try to boost prices unfairly, but that's another discussion. As for your taxation concern, I'm not clear how you see that happening. Lash
@flowerchilde (12520)
• United States
25 Apr 12
I consider myself a minarchist libertarian, which is to believe limited statism is the best thing. So printing ever more and more money to me would be a no njo, let alone for the economic and productive stifling. (The right wants to regulate personal choices) and the left wants to regulate the economy (although they did block efforts to regulate the big banks here in the U.S. before we had our banking crises which resulted in the government using a mass amount of the people's money to bail them out!) - But it is natural for government to want to grow and grow which of course cannot go on into infinity without being highly dangerous to liberty and well, everything else.. so to me the best thing is to keep government out of things as much as possible, especially any efforts to manipulate the economy.. We can pick and choose companies, and corporations by what we buy and do not buy, and by boycotting, but super government cannot be boycotted. I'm afraid every new program and outreach simply becomes bigger government and usually with very little actual benefit having been accomplished. (Otherwise why would government housing / "the projects" be the absolutely worst places in a city to live?)
@sharra1 (6344)
• Australia
21 Apr 12
I know nothing about economics but it makes sense to me. If it reduced our exchange rate it would make lots of people happy and cut inflation. Then they would not have to keep pressure on the federal reserve to cut official interest rates as they would change accordingly. It makes more sense than attacking the poorest in our society as somehow being to blame for the GFC as the current shadow treasurer is claiming. Apparently it had nothing to do with greedy banks or housing bubbles but it was all the fault of the greedy people who want unemployment benefits. Hmm if that is the case then how come it happened in USA where they do not have unemployment benefits. Anyway to make imports dearer could well save the manufacturing industry if it is not already too late. Too many of them have gone under recently. I have always believed in tarifs to protect our local industries from slave labour in other countries and increasing the cost of imports would have a similar effect without putting in tarifs. It might also stop foreign countries from building mines here and destroying our farmland to do it. The trouble is they will never do it because the rich will never let them and they are the ones who run everything in the background. The opposition is all in favour of the rich and want to have a society like Hong Kong where the poor starve and the rich pay almost no tax. Great if you do not care about your country. Apparently we are supposed to rely on our children to look after us as we lose the ability to work, but the trouble is what do you do if you do not have children.