Printing money with a money machine (Who, why and how?)
By gohan2091
@gohan2091 (544)
December 16, 2008 8:59pm CST
Not sure if I would ask this in politics or business so I decided to place it here.
My question is about printing money with a money machine. I assume with the different currencies all over the world, countries print their own money with their own money machine. What confuses me is who owns this machine? The government? Who decides how much money to print out? How is it decided when to print money out? How do they stop employees stealing the money?
With the financial crisis going on in the world, why don't countries simply print new reels of money? Sorry for the dumb question, can someone explain how this works?
2 responses
@xParanoiax (6987)
• United States
17 Dec 08
Simply printing more money, at least in America, increases inflation and devalues the currency...which is why it's considered a BAD thing for the economy.
This is because, we have more dollars than we do gold or silver right now...which the only legal money we have is based on precious metals. Anything that's not backed up by that is considered illegal here -- which is partly why the mojo that our Federal Reserve pulls at our government's behest is so confusing, even for us Americans.
When we don't print the money, we borrow it...which leads to debt.
Inflation and devaluation could concievably destroy our currency, which is why our government and the Federal Reserve are playing a dangerous game atm.
One that, some of us are sure will blow up in their faces should they continue.
The Federal Reserve is a private entity that our government decided a long time ago would print out the notes that'd represent actual money (in the form of dollar) and that they're the only ones who can legally create tender.
We do have a few other currencies in this country, but not many of them can be used as tender (although, if they're made of gold or silver, legally they're not supposed to be able to do anything about said currencies. They still don't take very kindly to it though).
I'm not sure how this works in other countries, but that's how it works here.
In some countries the government owns the machine, and sometimes the people own it...it varies from place to place.
But I don't think just making more money ever equals anything other than devaluation or inflation if it's not backed up by something real (unless the country's economy is based off of imaginary play-money and that somehow works).
...so yeah.
1 person likes this
@gohan2091 (544)
•
18 Dec 08
Thank you both of you for your replies. I am starting to understand now and this is rather interesting. One question which I know is dumb, but what is inflation and how does it play a role in global finance? Can any of you provide a good description of this?
@xParanoiax (6987)
• United States
18 Dec 08
Inflation corresponds with devlauation. It's when the cost of things rise...usually partially artificially due to market's awareness of the situation in addition to the actuality of the money being worth less and therefore the costs of everything rising.
The dictionary defines inflation as a rise in cost of goods, and while this is slightly oversimplified, I think it does okay in laymans =).
Its role in the global economy is complicated.
When the American currency (or any currency for that matter) is devalued because of inflation that's caused by simply printing money...it sends ripples.
It can mean a shift in what currencies become the most used, most stable...which translates into the global trust and confidence in those countries those currencies came from, which in turn tends to mean how well the business goes with that country and in turn, the world. Which then can mean how well the global economy is doing.
Right now, a few previously dominate currencies are becoming devalued (which I'm guessing is accompanied by inflation)...which has issued a kind of flux in confindence and business globally.
Since inflation does mean the rise in cost of goods...especially noticed in necessities like food, utilities, etc. this can often contribute to the worsening of the general economy. Whether confined to the country (normally this would depend how long these problems persist), or loose in the overall economy (this tends to depend on how much that country imports and exports and how inflation effects details like this).
Alternatively, deflation can be bad too...because it can happen after horible bouts with inflation. Deflation can often reflect how worthless goods become in a country after its been ravaged by high inflation.
It's why right now the net is alive with people discussing whether or not we face a period of hyperinflation or deflation presently (I'm presently wondering if we won't have a bit of both).
There's no such thing as a dumb question! I'm not an economist myself, so I had to ask these questions once too. Everyone starts somewhere, and not all businessman had degrees in economics, so anyone can get a decent grasp on this stuff...and the place to start is questions!
@ShepherdSpy (8544)
• Omagh, Northern Ireland
17 Dec 08
I'm no economics expert,(and I don't want to become one to explain a full and proper response to your question!) but I do know that printing more pieces of paper with (Insert your preferred money denomination here!) on it only leads to inflation of the currency,(NOT a good thing...) it doesn't help in the current situation...just one reason why counterfeiters and forgers don't get a good press..When we moved away from precious metals as a form of currency and replaced them with Paper "Money",the notes were assigned the value of an equivalent amount of gold..where the name for the British currency came from-One POUND was the equivalent weight of precious metal it could be exchanged for..that's no longer the case... due to inflation over the years,now,only the name remains.Look at currency disasters in history where Millions of a currency was needed to buy a loaf of bread due to financial mismanagement..that's what happens when you try to print your way out of the trouble you're in..
