WHY CAN’T THE U.S. GOVERNMENT PRINT MORE MONEY AND PAY OFF THEIR DEBT?
First of all, how did the world’s largest economy actually accumulate 22 trillion of the national debt?
The U.S. national debt is the total amount of money owed by the federal government to its creditors.
Creditors may be public (domestic or foreign investors), foreign government, and other corporations. To compensate for the accumulated budget deficit (Fed Government), it borrows money from creditors by issuing treasury bonds.
Since the U.S. government always spends more than it brings in through income generating source such as tax, it borrows money (as national debt) to compensate for that issue and therefore debt continues to rise.
As of April 20, 2019, the US national debt is 22.22 trillion dollars.
Who prints the money?
First and foremost, to be clear, money is not printed by the U.S. government or federal government. Why? Because it does not have the authority to do so. The U.S. Treasury is responsible for printing money and its supply is the responsibility of the federal reserve.
What is inflation?
Money is only valuable because, in exchange for it, people will give you goods and services. Money derives value from goods and services.
Printing more money does not change the number of goods. It simply spreads the value of existing goods and services around a larger number of dollars, which is known as inflation.
‘Too much money chasing too few goods’.
Milton Friedman
Simply, inflation means, a general increase in prices and fall in the purchasing value of money.
Inflation (in fact hyperinflation) occurred in Zimbabwe in 2008 when the inflation rate rose to 231,150,888.87% (normal inflation rate in first world countries is 0-5%). They literally had to abandon their currency because it had no value whatsoever.
Does money printing cause inflation?
You may argue about it, but printing money doesn’t necessarily always cause inflation.
Money printing will only cause inflation if it is in imbalance with credit.
Moreover, it is largely dependent on purchasing and producing in the economy or on supply and demand.
Basic economics tells us that an increase in supply (of goods and services) leads to a fall in demand and therefore a fall in price.
In other words, the price does so as the demand increases.
Therefore, more money in the economy, the lower each dollar’s value.
Then other countries can buy more dollars for their currency. Therefore, the result is inflation.
More money in the economy is causing a shift in the demand curve for goods and services, but since an increase in economic output does not match this, prices must rise. And that could lead to economic chaos.
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