I Need a Lesson in Basic Economics. Why Don't We Print More Money?

[Tortington]

I was reading this when i decided i needed a lesson in basic economics.

I was talking about the state of the country with my SIL the other week when her 17 yo daughter said " why don't we just print more money"

i Naively said something along the lines of it all being relative and that if you print a lot of money, the money that you are printing wont be worth anything.

then the article linked to above - kind of made me think i need a lesson in economics.

its not very readable that article i don't think - but please read it and tell me why printing money is a good idea?

[Itsjustafleshwound]

Printing money/quantitative easing - basically means that the banks will put more money into circulation to meet the demands, but the cash isn't 'backed up' or supported by any growth.

It is a tool the bank can use because it can affect the amount of money in the economy without affecting the price of money i.e. the interest rate ..

[Tortington]

NOPE, i still dont understand, sorry - try again use visual aids - my mum always started with "pretend you have a cake and you cut that cake in the middle ..."

seriously though, dumn it down to thick as shit level

[QueenofJacksDreams]

lurks I need this lesson too especially on the thick as shit level I just don't get it. Same as cashiers tills needing to have the same amount of money in them at the end of they day as when they started the day. HOW THE HELL DOES THAT HAPPEN WITH PEOPLE BUYING STUFF?!

[Tortington]

omg what? don't confuse things - i;ll never understand

[scaevola]

Here's a link to the Bank of England's Quantitative Easing Explained booklet. It will tell you more than you could possible want to know.

[Tortington]

oh can't you tell me.... in like a paragraph?

[niceguy2]

Printing money is legalised fraud.

Say you've worked hard to earn £10. You've had to work making widgets for that. Then someone else comes along and just prints £10. That is legal tender. Well your £10 is suddenly "worth" less. There's more money now in the money supply. Someone can use the new £10 to buy something now which you worked hard for.

Sure in the short term there's a boost because of all the extra tenners rolling around in the economy. But longer term all you've done is devalued your currency.

[TobyLeWolef]

Place marking.



Although I do understand the cashiers' tills thing.

[Tortington]

well thats what i thought niceguy - so why are they doing it?

what am i missing

[AnyFucker]

Thanks for asking this custy, I don't get it either

[niceguy2]

Because people (erm mainly banks) are not spending money at the moment. They're holding onto it and not lending it to others. So by printing more, there's more money floating around, the idea being that people will start spending it then.

So for (simplified) example, I am a bank. I have £4 billion stashed away...just in case. All of a sudden, the Bank of England rumbles along with another £4 billion of cash to spend. I still have £4 billion sat in my safe, yet I can now lend the other £4 billion.

The other side is I am the USA. I owe China trillions of dollars. So I print more thereby making my currency worth less and easier for me to pay off my debts. I'm actually surprised the Chinese haven't gone mad over it. I'm sure if the tables were reversed the US would be going nuts.

[AnyFucker]

nope, don't get it < deflated >

[AbsDuWolef]

Okay, I'll explain using cake (as you asked).

Your friend has a cake (I really miss cake, FYI. DAMN YOU DUKAN). Your friend then gives you a voucher which entitles you to the cake. NICE! A whole cake to yourself! But then your friend prints some more vouchers, so now instead of the voucher entitling you to the whole cake, there are ten vouchers, so you only get 1/10th of the cake.

Capiche? that's what quantitive easing is basically. Printing too much money can lead to a currency being massively devalued, see Zimbabwe about five years ago and Weimar Germany.

[AnyFucker]

why do it then if it doesn't work, and in fact makes things worse ?

[AbsDuWolef]

It can work, by making your currency weaker, in relation to other currencies. This can be a good thing - it means that it is cheaper for other countries to buy your products. But it means that importing becomes very expensive. If your currency is too strong (like Switzerland's is at the moment), people don't want to buy things from you. Real life example, my colleague no longer buys us crisps when she visits Switzerland, as they cost around £15 a bag. WRONG

[Itsjustafleshwound]

Niceguy did a good job.

My understanding of quantitative easing is :

you have borrowed £5 to make the £10 profit. You owe your dad/lender £6 (£5 plus his benefit of lending you the bucks i.e. £1). If the bottom falls out the market, suddenly it is harder to get a loan for £5 and so if the next person wants to borrow from your dad, he is going to have to pay £2 for the same loan and you will also owe your dad more as that is the going rate (no family favours)

Therefore, by printing £10, means that your money is really worth less, but you are still borrowing the fiver from your dad at £1, with the risk that you will probably need £15 for your living expenses, because the extra cash has made goods more expensive (inflation)

[AnyFucker]

nope

not going in

[AbsDuWolef]

[niceguy2]

I liked the cake analogy!

[Itsjustafleshwound]

Inflation: growth in prices of goods with a decrease in the spending power of money. Inflation is the fact that your £1 buys less today than it did yesterday. Currently the inflation in the UK is 4.5% - basically that means that a year ago, you got 4.5% more for your money than you do today (I think!!)

By printing more money, it helps the economy in that it meets the demands for cash. The problem is that although the demand for cash is met, it doesn't necessarily mean that there is enough zooma (impetus) in the economy to actually meet this demand and so really you need more cash (inflation) to buy what you did before more money was added.

[CointreauVersial]

Doesn't it "stimulate" the economy, give it a little tickle? If the banks are holding on to all the money, no-one can borrow or spend, so having a bit extra money swilling around means people can buy stuff, shops get some business, manufacturers can make stuff, employ people etc. etc.

But do it too much and you get the devaluing nightmare, where it's worth less than it was before.

Well that's my understanding (and not a cake in sight).

[Voidka]

Printing more money was catastrophic in Germany in the 1920's.

[DorothyGherkins]

Cant we just eat the cake? The other stuff is boring, and I dont get it anyway. I always get cake.

[Tortington]

right - liked the cake analogy - well done.

listen.... so printing more money devalues existing money

this sounds like madness - which is why i didn;t get it

until -( have i got this right?)...you realise that you an print more money to pay something - as per the article ...........yes indeed it makes existing money devalued.

is this a bad thing though? because although we consider ourselves up the economic shit street, other european countires are faring worse.,

so we have the room to devalue the poundd a bit - beucase this in fact allows economic growth cos other countries can buy off us -cos we is cheaper now.... meaning that creates employment and stuff - if done on a larger scale - but not too large that we all have to buy a loaf of bread carrying a wheelbarrow of tenners?

is this about right?

[Tortington]

justy said this to dh who said " Thats what i told you"

"yes" says i "but you didn;t use cake"