Dollar Scholar Asks: Why Can't the Government Just Print More Money? (2024)

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Here at Dollar Scholar HQ (my apartment), we (I) firmly believe there are no stupid questions (because I ask them all the time). Remember when I was freaking out about going to jail for accidentally insider trading? Or worrying my future boyfriend will be broke? Or wondering if my Ocean Beauty personal checks worked the same as plain ones?

It’s with that nonjudgmental spirit that I endeavor today to answer one of the internet’s favorite financial questions: Why can’t we just print more money?

Things seem pretty dire right now. The United States has run up against its debt ceiling, which is the limit it’s allowed to borrow to finance its obligations. Treasury Secretary Janet Yellen keeps putting out increasingly dramatic statements about the impending “economic catastrophe,” and the Congressional Budget Office is warning that the government is set to “run out of cash sometime between July and September.”

Commenters online think they have the solution. If the government doesn’t have enough money, and the government is also in charge of making money, why doesn’t it simply… create more? Wouldn’t that fix the problem?

There are no stupid questions, so let’s find out.

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Why can’t we just print more money?

“The answer, in one word, is inflation,” says Alan Cole, senior economic policy analyst at The Conference Board, a business-focused think tank. “[That’s] the binding constraint on governments, in the end, that keeps them from issuing gobs of currency and buying whatever they want with it.”

It goes back to supply and demand. Increasing the money supply by, say, $32 trillion only introduces $32 trillion more into the economy. It doesn’t magically conjure $32 trillion worth of goods.

More dollars chasing the same amount of goods would cause prices to spike — in a major way.

Sean Snaith, the director of the University of Central Florida's Institute for Economic Forecasting, tells me that we’ve experienced a little of this recently: The government pumped money into the economy when the pandemic hit in 2020, and three years later inflation is still at 6.4%.

Look at increased rent, egg and car prices. Paying a bunch for basics is “not terribly pleasant,” Snaith says, and that’s nothing compared to what would happen with $32 trillion extra floating around.

Forget high inflation — we’d see hyperinflation, where prices could increase by millions of percentage points, Snaith says.

A scenario like this “grinds an economy to a halt. Prices don't really function the way they should, and because money doesn’t hold its value, people don’t want to accept it as payment,” he says.

Hyperinflation isn’t just a scary story. It’s happened repeatedly throughout history. In 1923 Germany, hyperinflation got so bad that workers were paid multiple times a day so they could use their wages to buy groceries before prices went up. In 2018 Venezuela, a 5-pound chicken cost 14.6 million bolivars… which is the equivalent of roughly $2. In 2008 Zimbabwe, teachers earned trillions of dollars a month — but a single loaf of bread cost 300 billion.

“[Hyperinflation] essentially destroys the economy” and kills the value of paper currency, Snaith says. People resort to bartering, which can be disastrous.

Imagine wanting to eat a hamburger for dinner and having to find a butcher willing to trade for it.

There's also the fact that the U.S. government wouldn’t print a ton of money. Cole points out that protecting the value of the dollar is something that we as a nation have specifically deemed important. Price stability is literally written into the mandate of the Federal Reserve, and the Treasury Department has similar restrictions.

“Neither the Treasury nor the Federal Reserve is really supposed to be going rogue and printing money in order to get us out of the debt ceiling standoff,” Cole says.

The reason? Surprise! It's inflation.

“Anything you do that undermines the value of the dollar and goes around the systems we have in place to issue more currency runs into the possibility of creating more inflation,” he adds.

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The bottom line

Printing more money is a non-starter because it’d break our economy.

“It would take care of the debt but at a price that’s far too high to pay,” Snaith says.

So what is going to happen with the debt ceiling? Snaith predicts that, after a few more weeks of infighting, lawmakers will eventually agree to raise the limit. Then it's up to them to take a hard look at the government’s spending.

“The long-run solution to the debt, if we’re concerned about its magnitude, is to balance the budget,” he says.

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Dollar Scholar Asks: Why Can't the Government Just Print More Money? (2024)

FAQs

Dollar Scholar Asks: Why Can't the Government Just Print More Money? ›

Surprise! It's inflation. “Anything you do that undermines the value of the dollar and goes around the systems we have in place to issue more currency runs into the possibility of creating more inflation,” he adds.

Why can't the US government just print more money? ›

It wouldn't be historically unprecedented. In fact, it's been done many times in the past. But nothing comes free, and though printing more money would avoid higher taxes, it would also create a problem of its own: inflation. Inflation is a general increase in the prices of goods and services throughout an economy.

Is there a limit to how much money the government can print? ›

Because we aren't on a gold standard, there's no limit to how much money they can create. The Federal Reserve prints money through a process called “Open Market Operations”.

Who does the US owe money to? ›

Nearly half of all US foreign-owned debt comes from five countries.
Country/territoryUS foreign-owned debt (January 2023)
Japan$1,104,400,000,000
China$859,400,000,000
United Kingdom$668,300,000,000
Belgium$331,100,000,000
6 more rows

What would happen if the US stopped printing money? ›

If the economy has been expanding, then this could lead to deflation. But if the economy is shrinking then this could lead to inflation. Central banks are constantly monitoring how much currency is in the system, and taking money out of it or putting money into it.

Can the Fed just print more money? ›

The job of actually printing currency bills belongs to the Treasury Department's Bureau of Engraving and Printing. But the Fed determines exactly how many new bills are printed each year. Quantitative easing, an asset-purchase program, is one way the Fed increases the money supply in times of financial crisis.

Why can't we just print less money? ›

Most money is actually created by private banks and so attempts by the central bank to limit the money supply are doomed to failure. The bank can influence the demand for money by increasing or decreasing interest rates, but does not control the money supply itself.

Why can't we just print more money and not tell anyone? ›

Answer: Printing more money does not solve a country's financial problems, rather it would exacerbate those. Suppose an economy prints more money, it would mean that the consumers can now buy more goods or a greater quantity of the same good.

Why does printing more money cause inflation? ›

When the Fed increases the money supply faster than the economy is growing, inflation occurs. In this situation, the increase in money circulating in an economy is higher than the increase in goods produced. There is now more money chasing not as many goods in this economy.

Who decides how much money to print? ›

Key Takeaways

The Federal Reserve, as America's central bank, is responsible for controlling the supply of U.S. dollars.

How much does China owe the United States? ›

The United States pays interest on approximately $850 billion in debt held by the People's Republic of China. China, however, is currently in default on its sovereign debt held by American bondholders.

What country owes the US the most money? ›

With $1.1 trillion in Treasury holdings, Japan is the largest foreign holder of U.S. debt. Japan surpassed China as the top holder in 2019 as China shed over $250 billion, or 30% of its holdings in four years.

Which country has no debt? ›

1) Switzerland

Switzerland is a country that, in practically all economic and social metrics, is an example to follow. With a population of almost 9 million people, Switzerland has no natural resources of its own, no access to the sea, and virtually no public debt.

Why can't we just stop inflation? ›

Stopping inflation completely is not feasible for several reasons: Natural Economic Processes: Inflation is a natural part of most economies and can be caused by various factors, such as changes in supply and demand, production costs, and monetary policy.

Why can't the government stop inflation? ›

There are a variety of reasons why it is hard to control inflation. When prices are higher, workers demand higher pay. When workers receive higher pay, they are able to afford more goods, which increases demand, which then increases prices, which can lead to a possible wage-price spiral.

Can the Fed take money out of the economy? ›

Through open market operations the Fed can buy or sell securities on a secondary market. By buying securities they bring new money into circulation, by selling securities they take money out of circulation.

Why is the US government printing so much money? ›

Consumer demand and trends in payment methods are not the only reasons the government continues to place print currency orders. Another reason is to replace money already in circulation that has been destroyed.

How does the US government decide how much money to print? ›

Each year, the FRB places a print order with the BEP to produce new banknotes. The order is based on the FRB's estimate of public demand of currency for the upcoming year and how much currency they estimate will be destroyed because it is unfit to circulate.

Why can't states print their own money? ›

Section 10 denies states the right to coin or to print their own money. The framers clearly intended a national monetary system based on coin and for the power to regulate that system to rest only with the federal government.

Which country prints the most money? ›

Countries like the U.S. are legally obligated to print their banknotes within its territories, though other places like Liberia don't even have their own mint. The BBC reported a banknote printer produces up to 1.4 billion notes a year, specifically the U.S. prints approximately seven billion notes per year.

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