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?

Zimbabwe did this.

Say their bread used to cost £1. Then they didn,t have much money and everyone was poor so they printed lots of money and everyone was loaded. People were waving notes around like confetti.

In the past bread had maybe been a significant proportion of someone's wages so not something you bought every day. There was therefore enough bRead for people who could afford it.

But now everyone could afford bread and buying it twice a day and feeding the ducks. So they were running out of bread. So the bread sellers decided to sell it for £5 instead. They could sell the same amount of bread for more money.

But then the people who rented the factories to the bread makers got pissed off and increased the rent tenfold as they wanted more profit as well.

Then the petrol station thought that well bread was always the same price as a litre of fuel so they put petrol prices up.

Now people can't afford anything so they demand a major wage increase. It spirals and spirals and people are having to cart their cash about in wheelbarrows.

And if you want to go on holiday rather than 1 zim £ = 1 euro you now need 4000zim £ to buy one euro. I don't know exact figures but you get my drift.

But it also depends on the fact that the country who is going to be buying UK goods wants and has the demand and money for UK goods.

Isn't this the issue with China and the US - the appetite for spending by the US is down, China doesn't need to produce as much as it did ...

Zimbabwe has hyper inflation - there is a joke going around that when you play a round of golf make sure you buy your drinks before the game because they might have just gone up by the time you have finished your game !!

Because it can cause massive deflation, and it pisses off countries you owe money to. germany did it after WW1 to decrease the size of their debts and it caused chaos. Greece will probably do it if they default and get kicked out of the euro.
Even if you print more money it often does not make a difference to an individuel as the price of thigns will shoot up to make up for it.

What Zimbabwe did was reckless printing, which left its money worth about the paper it's printed on.

Quantitative easing is a macroeconomic strategy, and has its place. In fact, it is one of the more effective tools available to steer the economy.

Devaluation of currency is but its side-effect. The goal is stimulating an economy heading for recession.

cestlavie - I thought you would know better than call QE "legal fraud".

When the uk first had the crisis a few years ago I did read an article stating that it could be solved by giving every person 25k. That would be enough money tom stimulate the economy, peoplemwould go shopping, buy cars, have an extension, etc. This would create jobs and therefore more money and it would snowball.

Shame Gordon brown didn't go for that option.

"But can't they just print lots of money to give to charity"

And that would stimulate the economy... how, exactly?

They don't "give" printed money to anyone as a gift, btw. Bank of England buys treasury bills (its own bonds) back from banks. That means, banks now have much more cash than before. That cash has to go somewhere, and a lot of it gets lent to companies and individuals. These companies then invest (economic stimulation) and thes individuals then consume/construct/buy (more economic activity).

When inflation starts getting out of hand economy is sufficiently stimulated, Bank of England issues debt (bonds) again. Banks buy these. That means, banks now have less cash and more bonds.

fleshwound, the UK exports very few goods, hardly any in fact.

do we all get it now?

Viva - The author of that article should read about Japan's recent history, where even negative interest rates couldn't get people to spend money. Giving people loads of cash is not always going to get them to spend it.

no

Ok so now can I embarrass myself?

Can someone explain to me - when a country is in debt (ie Greece springs to mind atm) - who is it in debt to? When news programmes talk of the UK being so many billions in debt, who have we borrowed it from? Who is the invisible all powerful bank in the sky who lends money to whole countries?

I like to think great stinking expanses of the news are actually really understood by hardly anybody, but we all go around pretending we know what it all means. Or maybe it really is just me

So eg. has Greece borrowed from us ?

Have we borrowed from them ?

Why doesn't it cancel out then ?

And why don't we just print our own money and stop using other people's ?

Who has all the debt books then ? Who has all this money owed to them ? Saudi Arabia ?

And how can we lend money to anyone if we're in debt? Isn't that like me not being able to lend someone a tenner cos I haven't been paid yet?

And how can we give millions towards 3rd World Debt when we are up Shit Street ourself ?

or is that another thread

never a borrower nor a lender be < wise >

I literally do not understand any of this, to the point of almost crying about it! My dad tried to explain the German (20's?) crash to me when I was young and it just left me reeling.
Like Custardo, I simply can't get my head around why more money can't just be printed, but prices remain the same - so it doesn't therefore devalue the currency. I admit it's a good job I'm not in charge of any economic decisions, but it just makes my brain ache. Not remotely getting the national debt thing and why they just can't all be written off either.
I can do really hard cryptic crosswords though, so I'm not actually thick... it's just economics really, really confuse me!

It was in reaction to the 'buy off us' comment by custardo.

The UK doesn't export much. There isn't much of GB plc in the FTSE 100 either ...

"when a country is in debt (ie Greece springs to mind atm) - who is it in debt to"

Countries issue debt (a piece of paper) which is bought by... whoever. It could be central banks of other countries (like Bank of England), banks, or even individuals. You could tell your bank manager that you want to invest money in UK debt (called "gilts") and he could buy you some. You could buy these at the next auction, in which case you would be one of the lenders. Or you could buy them in the secondary bond market, from some other bondholder.

At any given moment in time, countries are in debt to whoever is holding their bonds.

The problem isn't so much that they are in debt it is more the affordability aspect of it ... all countries have to borrow (the Bank of England or equivalent issues a bond with the intention to pay the bearer back with interest) - the issue is that the prospects of them actually paying back and possibly meeting their obligations is compromised. It is like countries live in overdraft and if there is a prospect that perhaps the account owner has lost his job/earning less the overdraft looks shaky, the interest rate on the overdraft is raised and other banks don't want to open an account for them to change.

Some countries aren't in debt - we borrow heavily from the Far East/China who buy these European bonds .... The whole issue is that we have been borrowing the money very cheaply in the early 00's from China and with this cheap money we have been buying Chinese produced products so the money has flowed back to Chinese companies .... stop the demand for goods, increase the interest on cheap loans and there is meltdown ...

Greece is an issue, because we are already feeling a crunch and because of our Euro agreements we are partially responsible to see that these failing EU countries are kept stable.

We borrow because our tax receipts and corporation tax don't meet our bills and demands to keep GB plc in the black.

do you mean to say Greece owes me money ??

I will take it back in kind

< books flight to Athens >

"So eg. has Greece borrowed from us ?"

Who is "us"? Bank of England (no, except through commitments to ECB)? British banks (yes)? UK citizens (probably some)?

I had read a figure of $4 bn re amount of Greek debt held by UK banks, which is not much compared to French & German banks' exposure.

"Have we borrowed from them ?"

Like above, UK debt is held by Greek banks and Greek individuals.

"Why doesn't it cancel out then ?"

Because the holders of the debt (lenders, if you prefer) are private individuals and companies/banks, whereas issuers of the debt (borrowers) are sovereign countries.

Besides, all this is in different currencies and with different interest rates. Meaning, 100 pounds invested in Greek debt will earn you 15 pounds a year, but 100 pounds invested in UK debt will earn you 2 pounds a year so they don't have cost the same.

"And why don't we just print our own money and stop using other people's ?"

Because if you keep printing money, you will have hyperinflation a la Zimbabwe.

You are all very kind to us thickos

Now if anyone needs a lesson in Human Anatomy and Physiology and your aches and pains diagnosed, I'm your person

I will keep that in mind

Yes CoteDAzur - you are very wise.