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Original poster

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

132 replies

Tortington · 19/09/2011 16:33

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?

OP posts:
said · 21/09/2011 00:19

China doesn't have a floating exchange rate, btw; it has a fixed one. < My contribution>

CoteDAzur · 21/09/2011 07:36

LoremIpsum - Maybe i didn't quite understand what you meant by this:

"So because money is something we invented, we have to stick to the rules we attached to it or it becomes worthless because it's the rules/structure that give it value?"

Yes, money is something we invented. What gives it value is that Bank of England says that particular piece of paper is legal tender in this land. What determines the level of this value (it's "worth") is supply (how much of it is in circulation) and demand (how many people/banks/countries want to hold it).

I'm not sure what you mean by rules and structure giving money value.

CoteDAzur · 21/09/2011 07:42

Said - It's not actually a fixed exchange rate but a "managed float" where Yuan is allowed to rise/fall only by 0.5% each day. I know what you mean, though. China doesn't really need to buy USD to support it, because it already has so much from its trade surplus with the US.

niceguy2 · 21/09/2011 08:53

Cote. So using your example both the finance director and the counterparty have essentially placed a bet based on what they think may happen in the future. I fail to see how that's not gambling? You can polish a turd how you like, it's still a turd.

RedRubyblue, i didn't understand your example at all. The example I prefer is that Greece is your brother and has frittered all his money. He's also maxed out his credit card and still has much larger outgoings than his income. He's now coming to you asking for a loan. He's saying that if you don't lend him the money, he & his family will starve. And that if you don't lend him money that your family name will be mud and noone else will also lend to you because you also have debts.

So you lend him some money on the condition he sorts his finances out. He makes a token effort but some months later is back again. Using the same arguments.

The question is, how long do you continue to throw good money after bad? And at what point do you cut him off and let him sink/swim in the pool of shit he created himself? That's basically the dilemma the European leaders have right now.

CoteDAzur · 21/09/2011 09:12

niceguy - You have the intellectual capacity to understand what I am saying, if you only try to understand it.

Hedging is the opposite of gambling. It is buying insurance for future risk like "What if the price of my raw material rises by more than 20% and I end up making a loss?"

To this end, the finance director of the steel company in my previous example would seek to buy an option to buy iron ore at today's levels for six months in the future. Or he could protect himself from USD fluctuations (because iron ore price is quoted in USD).

TobyLeWolef · 21/09/2011 09:58

Hang on, this is not what the Independent told me to expect. How does all this relate to skiing with babies?

:o

niceguy2 · 21/09/2011 10:10

Ah ok....I get you now. Fair enough because I've often thought of insurance as a form of gambling too.

I pay my insurance company who will pay out upon specific scenarios so I wont have to. The insurance company is 'gambling' that they will pay out less than they get from everyone.

CoteDAzur · 21/09/2011 10:37

You seem to believe all business is gambling in some way.

Pinot · 21/09/2011 13:59

Cote I am in awe.

Anyfucker Do you know owt about crepitus of the knee perhance? I am afflicted!

said · 21/09/2011 18:16

"managed float" was what I meant Wink

AnyFucker · 21/09/2011 18:24

could this be your problem, Pinot ?

DrNortherner · 21/09/2011 19:03

Love the quote about a turd is still is a turd Grin

Wow this thread is an education. Wish I'd tried harder at school.

Pinot · 21/09/2011 20:22

Anyfucker Yes yes! That's me! I hurt it doing the bastarding Shred DVD That's a great link, have saved it for reference. Thank you!

AnyFucker · 21/09/2011 20:42

I have worth

I have worth

I am not fick

I am not fick

I don't understand Economics, but some things I am good for Grin

Pinot · 21/09/2011 21:03

I can't do economics or anatomy medical shizzle but I make great roast potatoes!

(even with a crappola knee)

AnyFucker · 21/09/2011 21:09

ah, roasties are great currency Grin

I am a shit cook, but I could get your knee(s) better

Pinot · 21/09/2011 21:11

Marry me?

AnyFucker · 21/09/2011 21:14

Pinot, I think we would make a very productive couple Smile

Pinot · 21/09/2011 21:16

heh heh we would just not in economics :o

AnyFucker · 21/09/2011 21:26

erm yes < starts to feel a little uncomfortable > Wink

singforsupper · 21/09/2011 22:19

Phew! what a read - but very educational due to the questions from the thickos bench, where I would like to mark my place.

This iron ore example you use - you say they have to insure themselves against currency valuations because iron ore is measured in USD. Why is it measured in that - can't they make a contract with the buyer to say that I promise to sell x quantity of ore at x price on x date in x currency? Then choose the currently they feel safest with?

I think this is where Lorem is talking about the structures and rules - or have I got this completely wrong? I do tend to glaze over...

singforsupper · 21/09/2011 22:20

Sorry that was aimed at cote.

TheNorthWitch · 22/09/2011 20:58

But isn't there something called fractional reserve banking which means the banks ARE lending out money they don't have??

peanutbutterjellytime · 22/09/2011 22:59

I have just spent the last hour slowly reading this thread. Tommorow I will read it again and again until it finally sinks in!

But so far I have learnt more from this thread than all the hours of news and newsnight that I've watched and I too am in awe!

Original poster
Tortington · 22/09/2011 23:56

me too, quantative easing - i want to slip it into conversation

OP posts: