Discussing Time To Print Money? US Economic & Monetary Policy

In summary, Russ believes that the U.S. should stop borrowing so much money and start merely printing it basically "out of thin air." He believes that this would create wage and real estate inflation, and reduce the trade deficit.
  • #1
JakeA
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I'm wondering what people think about this idea concerning U.S. economic and monetary policy. I believe we should stop borrowing so much money and start merely printing it basically "out of thin air."

The reasons for this are numerous, and I'm working on some math models to show why it would work. Basically you have the following:

1. It appears that the vast U.S. national debt, now at $11 trillion is acting as a monetary sink which siphons off money from investments in other areas like real estate and business ventures. The term is "flight to quality," but what's really happening is classic monetary "hording." Money is being holed up instead of being used to benefit the economy. The vast national debt is facilitating that.

2. Japan, with also a massive national debt, has the same problem. It also has similar results. Reduced economic activity, deflation, etc.

3. Printing money would be inflationary, however inflation isn't such a bad thing all the time. There's no such thing as pure, evenly distributed inflation. We want wage inflation and we want real estate inflation. There's every indication that printing money instead of borrowing it would create wage and real estate inflation in America.

4. You could drastically lower the income tax burden by printing money instead of borrowing it. That would also spur the economy.

5. Inflation can be nasty. Look at Zimbabwe which is printing money like crazy and has like 1 million percent inflation. You need to do things to decrease the money supply if you did it.

6. Printing money would create a pure monetary tax. To me it seems like the most fair and easily implemented form of tax. Yes, it's somewhat regressive, especially for poor people trying to save money, but poor people in America don't save money. Let's not fool ourselves about that.

7. It would help ease our trade deficit, since our currency would be less valuable to buy foreign goods.
 
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  • #2
How does your #5 not invalidate your entire premise?
 
  • #3
I think we're doing both - borrowing and printing - or planning to do so. The Obama admin has even discussed the perils of the consequential inflation and how this must be considered as part of a long-term economic recovery package.

You guys should watch NBC's Meet the Press, and ABC's This Week. This is all old news.
 
  • #4
Russ, that's the million dollar question. Can you get away with financing government by purely monetary mechanisms? Obviously Zimbabwe can't. But Zimbabwe is not the U.S. Mugabe has basically disenfranchised anybody in Zimbabwe who knows how to do anything. For instance he seized private farms in the country, kicked the owners off and gave them to incompetent political cronies. As a result they now have to import their food with a soft currency.

The U.S. in contrast has a solid private property infrastructure as well as a vast array of resources and production capabilities. I think we can get away with printing, while Zimbabwe can't. The tiny Island nation of Cuba has been doing it for decades with significant success. That should tell us something. Saddamist Iraq tried it and failed with their dinar going from three dollars to a dinar to I think around one million dinars to the dollar. Again, they failed because under his reign, they couldn't make much themselves and had to import everything.

USSR had a soft currency for years and had a highly technologically advanced society. However their government was corrupt, so society suffered.

My point is that, yes, some countries try soft monetary policies and get away with it and others can't. There's a lot of reasons to believe that the U.S. can get away with it.

Ivan, the U.S. is not "printing" money in the context I'm talking about. I'm talking about the government spending money without a balancing accounting journal entry to either pay it back or fund it from a bank account.

There are at least 4 ways of generating money for the government.

1. Tax people, bank it, then spend it.
2. Borrow it, then spend it.
3. Let other entities borrow it from the federal government, they spend it but eventually need to pay the government back.
4. Spend it and don't pay anybody back.

What I'm talking about is #4. Spend it and don't worry about paying back. Incidentally if you need to pay back, the only way to do it is #1. The problem is that if you do the math, there's no conceivable way that #1 is adequate for paying back government obligations, especially in a deflationary period. You're inviting disaster with current monetary policies.
 
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  • #5
Incidentally, after I wrote that list of funding sources down, I did a bit of checking to see how much the federal gov actually does of #3. I'm not sure it does any of that. I'm guessing that all funding comes from either taxes or federal treasury notes, i.e. borrowing from 3rd parties. We are clearly not "printing" money, but massively borrowing it, something that's worse than printing money out of thin air IMO.

http://www.cnbc.com/id/29099106

http://online.wsj.com/article/SB123388703203755361.html
 
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  • #6
actually the fed is currently printing money to pay debts of all sorts including the purchase of treasury bonds. This is a better way of doing what your thikning of as the government is spending the printed moey with the notion that they will eventually have to pay it back.

however as the debt holder is the federal reserve (a chunk of the government... sort of) the gvernment owes money to itself.

the only thing is is that the fed is tasked with controlling inflation and promoting growth, so if they deam that the best monetary policy is for the government to never pay off its debt than they can keep buying the treasuries ad infinitum. however if they need to get inflation under control they may at some point start selling those treasuries (or stop buying new ones) in order to either A: eat money directly out of the economy or B: slow down the velocity of money by making interest rates go up.

essentially our currency is in the hands of a 3rd party the "fed" and whatever they decide is best for it is what will happen.
 
  • #7
I think you're right and I was wrong about the government not lending money to itself.

http://www.federalreserve.gov/releases/h41/Current/

Can anybody explain what "Reserve balances with Federal Reserve Banks" is on the fed's balance sheet? It seems like it's using that account to offset buying T notes, basically the government loaning money to itself.
 
  • #8
Or maybe I'm wrong about this yet again. Still trying to understand the Fed's balance sheet. I think Reserve Balances are deposits from banks as reserve balances. What's happening is that banks are getting TARP funds and turning around and depositing them with the Fed instead of loaning them out. The Fed turns around and buys Treasury notes to, well I guess, fund things like TARP.

Am I wrong? It doesn't appear that the Fed merely "prints" money to purchase T bills. "Currency in circulation" could be a seen as a form of pure printing, but that's remained constant for a while.

http://www.federalreserve.gov/releases/h41/

http://www.dailymarkets.com/economy...es-as-federal-reserve-balance-sheet-explodes/
 
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  • #9
Continuing what has already been stated, the Federal Reserve purchases US Treasury securities from its primary dealers. The US Treasury does not have to worry about paying back the principal and instead pays the interest also known as a coupon. Most pundits, economists and politicians talk only about the payments on the interest of the US public debt and never discuss the payment of the much larger principal.

Reserve balances with Federal Reserve banks refers to the reserve or account of the Fed's primary dealers, those institutions such as Goldman Sacs, Lehman Brothers, etc. These banks deal with US Treasuries by the hundreds of millions of dollars. I took this information about overdrafts from the Federal Reserves website:

This policy is intended to provide extra liquidity through the use of unencumbered collateral by the few institutions that might otherwise be constrained from participating in risk-reducing payment system initiatives. The Board believes that providing extra liquidity to these few institutions should help reduce liquidity-related market disruptions.

http://www.federalreserve.gov/paymentsystems/PSR/policy.htm#daylightdef

Is that coherent or possible to decipher? I can't make anything out of it other than "we are here to give money to these banks to prevent long-term declines in the stock market" Not a bad plan. When the stock market dives the US Treasury lowers short-term rates and investors to put their money in the more risky stock market than the less risky US Treasury.
 
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  • #10
DrClapeyron said:
Most pundits, economists and politicians talk only about the payments on the interest of the US public debt and never discuss the payment of the much larger principal.
If you wait a couple of centuries the principal goes away.

When the stock market dives the US Treasury lowers short-term rates and investors to put their money in the more risky stock market than the less risky US Treasury.
Perhaps the whole stimulus plan is a brilliant tactic to restart Wall St by persuading investors that the US treasury is MORE risky!
 
  • #11
Actually the Fed is starting to basically print money out of thin air, but still claiming that it will be paid back. The only way we can ever pay it back is with inflation. Everybody knows that including the Chinese and the Russians.

http://www.reuters.com/article/usDollarRpt/idUSLJ93633020090319

http://www.reuters.com/article/ousiv/idUSTRE52I3AG20090319

Get ready for inflation. Dollar is down. Oil is creeping up. It's starting fall into place. Inflation probably would be a good thing, though. We need to get housing prices moving again. That's the only thing that will cure our economy.
 

Related to Discussing Time To Print Money? US Economic & Monetary Policy

1. What is "printing money" and how does it relate to the US Economy?

"Printing money" refers to the process of creating new money by a central bank, such as the Federal Reserve, in order to stimulate the economy. This is done by increasing the money supply, which can lead to inflation if not carefully managed. In the US, the Federal Reserve is responsible for managing the money supply and implementing monetary policy to promote economic stability.

2. Why does the US government sometimes resort to printing money?

The US government may resort to printing money in times of economic downturn or crisis in order to stimulate economic growth. This can be done by lowering interest rates and increasing the money supply, making it easier for businesses and individuals to access credit and invest in the economy.

3. What are the potential risks of printing money?

The main risk of printing money is inflation, as an increase in the money supply can lead to a decrease in the value of the currency. This can also lead to a decrease in consumer purchasing power and a decrease in international competitiveness. Additionally, if not managed carefully, printing too much money can also lead to economic instability and financial crises.

4. How does printing money affect the average person?

Printing money can have both positive and negative effects on the average person. In the short term, it can lead to lower interest rates, making it easier to borrow money for things like buying a home or starting a business. However, in the long term, it can lead to inflation, which can decrease the value of savings and make it more difficult for people to afford goods and services.

5. What are some alternatives to printing money for stimulating the economy?

There are several alternatives to printing money for stimulating the economy, such as fiscal policies like tax cuts or government spending, or using monetary policies like lowering interest rates or implementing quantitative easing. Each option has its own advantages and disadvantages, and the best approach may vary depending on the specific economic situation.

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