Why Can’t We Just Print More Money? | Free the Facts (2024)

FAQs

Why Can’t We Just Print More Money? | Free the Facts? ›

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.

Rise in inflation of products and devaluation

One of the drastic and immediate outcomes of printing excessive amounts of money is inflation. When the supply of money surpasses the demand for goods and services in an economy, prices will begin to rise rapidly, and that is a problem.

Can't We Just Print More Money?, by Bank of England economists Rupal Patel and Jack Meaning, is a well-timed attempt to show the public what goes on inside – and familiarise them with some basic economic concepts.

If they stopped printing money, they would have to drastically reduce expenses and stop deficit spending. Because 44% of GDP is government spending, any decrease in spending would also result in a decrease in GDP. Any significant drop in GDP would cause panic.

If the government prints too much money, people who sell things for money raise the prices for their goods, services and labor. This lowers the purchasing power and value of the money being printed. In fact, if the government prints too much money, the money becomes worthless.

For obvious reasons perhaps, banknotes, cheques, passports, postage stamps and identity cards can never be scanned or printed. This is thanks to what is known as 'Security Printing', which has been introduced to prevent forgery and counterfeiting.

Does Printing Money Cause Inflation? Yes, "printing" money by increasing the money supply causes inflationary pressure.

Cost by denominations

Printing a one-dollar bill costs 5.4 cents while printing a $100 bill costs 15.4 cents. Surprisingly, the most expensive bill to print this year will be the $50 bill at 19 cents a piece. Smaller denominations are generally less expensive to print because of fewer security features.

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.

Is it illegal to print money? ›

The creation or possession of any instrument used to produce counterfeit currency, such as metal plates used to print bills, is also considered a counterfeiting offense. This includes scanning or making digital copies of any bills or other “obligations or securities,” with the intent to use them in counterfeiting.

As the chart below illustrates, bonds have nearly doubled the annual return of cash over the past 42 years, with a 7.13% annual return on average vs. 4.02% for cash. In addition, from January 1981 to December 2023, the 12-month return of bonds outperformed cash 71% of the time. Source: Bloomberg, Federal Reserve.

U.S currency is produced by the Bureau of Engraving and Printing and U.S. coins are produced by the U.S. Mint. Both organizations are bureaus of the U.S. Department of the Treasury.

Prior to 1971, the US dollar was backed by gold. Today, the dollar is backed by 2 things: the government's ability to generate revenues (via debt or taxes), and its authority to compel economic participants to transact in dollars.

The U.S. Federal Reserve controls the supply of money in the U.S. When it expands the money supply using monetary policy tools, it is often described as printing money.

The $35 trillion gross federal debt includes debt held by the public as well as debt held by federal trust funds and other government accounts. In very basic terms, this can be thought of as debt that the government owes to others plus debt that it owes to itself.

The Reserve Bank of Zimbabwe responded to the dwindling value of the dollar by repeatedly arranging the printing of further banknotes, often at great expense from overseas suppliers.

In total, other territories hold about $7.4 trillion in U.S. debt. Japan owns the most at $1.1 trillion, followed by China, with $859 billion, and the United Kingdom at $668 billion. In isolation, this $7.4 trillion amount is a lot, said Scott Morris, a senior fellow at the Center for Global Development.

1) Government must borrow to finance its deficits because printing money would cause massive inflation.