In this (how much money is there) article Cecil says:
But in this (Who owns the federal reserve) article Cecil says:
So which is it?
Okay, here’s a way to weasel out of it: There’s a difference between money and currency. Most money today does not physically exist as coins and notes; there’s also checkable deposits, savings deposits, mutual funds, and so forth. Since currency only makes up a small portion of money and there are ways to influence the amount of non-physical money, the total amount of the former does not matter all that much.
If it “does not matter all that much” (which is what Cecil said in the first quote) then why would printing gaggles of it “make your currency worth half as much” (like he said in the second quote)?
Because as Cecil pointed out, the amount of money the US prints is inconsequential to the total amount of money in circulation. See here: File:Components of the United States money supply2.svg - Wikipedia Cash comprises about 10% of the US money supply.
However, paying off the national debt would mean printing about $11,000,000,000,000 of cash.
The way **Cecil **puts it creates confusion. But it is correct that simply printing some money (per the first quote) won’t do jack because some printed cash sitting in a government vault somewhere isn’t going change anything.
What will have an effect is using that money to pay off the national debt. If you want to be picky and highly literal about it, rather than reading for comprehension, **Cecil **mis-speaks where he says that printing “enough money to pay the whole thing off” is nuts, because it is not the act of printing the money that is nuts. This is why there is an apparent contradiction with the first quote.
But I think **Cecil **is assuming you will realise that what he means in the second quote is that printing “enough money to pay the whole thing off” and then taking the implied step (ie actually going ahead and purporting to pay the whole thing off) is nuts.
If you examine what a world renowned economist such as Cecil Adams has written or said, and you feel that you understand it perfectly, of course you are mistaken. If you doubt this, please look up Alan Greenspan’s addresses to congress, and try to make heads or tails of them. Before him, Paul Volcker was just as cryptic, and everyone pretended to know what he was talking about.
Word. Cecil makes sense, by comparison.
I can see that you both have the Booty Kiss down to an art but nether post answers my question.
Yes I agree but you are missing the point.
In the first quote Cecil is saying that printing money DOESN’T effect inflation (“People sometimes say inflation occurs when the government “prints too much money.” Nonsense. The amount of money actually printed is inconsequential”) but in the second quote Cecil is saying that printing money DOES have an effect on inflation (If you double the amount of money in circulation without increasing the amount of underlying wealth, all you’ve done is make your currency worth half as much.).
So again my question is: Which is it?
It’s the context in which it’s presented. You can’t reconcile the ideas without putting them into context.
Do you really not grasp the difference between “printing enough money in comparatively meager batches over time, in order to satisfy consumer demand” and “doubling the entire money supply overnight” 
Of course I do but that is inconsequential. You are in essence making an easy question into a more difficult one.
The first quote leads one to believe that if I had 27 billion dollars in the bank, and I decided that my mattress was a safer place to store it, that I could simply go down to my bank and make a withdrawal and the bank (and thus the government) would be happy to fork over the cash. Not only that but if I was crazy enough to convince my rich friends to do the same then the banks could (and would) give them their greenbacks too without all of this “extra” currency effecting anything.
The second quote leads one to believe that the government can only print a finite amount of currency before said currency starts to devalue (and thus effects inflation) effectively saying that If my rich buddies and I yanked all of our greenbacks out we would be devaluing our money and driving inflation into the sky.
The point I’m trying to make is this:
Ether printing money effects inflation or it doesn’t. It can’t be both.
My question is:
So which is it?
I don’t think If you withdrew $5 billion from your bank that the bank just says to the government, “print up 5 billion, thanks”. The printed money represents the money you withdrew, the bank loses it. it goes to the governemt who prints it and gives it to you. No money is created where money didnt exist before. That doesnt cause inflation.
As opposed to a governemt that has its own bank, you withdraw 5 billion from it which they give you by just printing 5 billion extra dollars, money was created from nothing, so the value of that cash goes down.
Printing money isn’t the same thing as putting money into circulation. The money in my checking account isn’t printed, but it is in circulation, since it routinely moves into or out of my account. On the other hand, if the government printed up a bunch of greenbacks and stashed them in a warehouse, that’s money that’s not in circulation. How much money is in circulation does effect the value of that money, but the amount of money in circulation isn’t something the government (at least, not set up the way ours is) can directly control. The amount in circulation is determined by the behaviour of the people who are taking part in the economy, and all the government can do is to try to influence that behaviour (by things like adjusting interest rates, for instance).
xxx
You are interpreting the second quotation incorrectly. Printing money alone doesn’t have an effect on inflation; it’s printing money, and then putting that money into circulation that has an effect. The first quotation says it doesn’t matter whether the money is printed or not; it’s the circulation that matters. The second one says that doubling the cash in circulation results in inflation. There’s no contradiction.
Powers &8^]
If you take Economics 101, they talk about the “money supply”. It hits the news from time to time also. There’s different ones - M1, M2 etc. Depends what you count. When a bank lends out more money than it has cash in hand (they do) it “creates” money. As others point out, actual cash has very little to do with available money. If you add up how much money you had available - let’s say, to ransom your wife - there’s credit card limits, lines of credit, bank accounts, re-mortgage - stuff that can generate wealth, but none of it represented by actual bills in a wad somewhere.
The Fed does essentially the same. A bank needs cash - they “create” the money by lending it. As long as there’s not a run on cash, and everyone trusts the fed, it works. “Print” is just an expression.
However, let’s say the government suddenly tripled the salary of every government employee and just “create” the money. What would you do, if you sold cars or were selling your house, or ran a grocery store? you’d raise prices. The new rich employees would be less fussy about ahggling, and would pay higher prices. Soon, your employees would want a raise, since you’re raking in the extra cash (or they’d quit and go work for the government).
It goes around in circles until finally, a day’s pay is worth what it’s worth to people, and so are cars and food and houses. Just the nambers are bigger. It’s Lewis Carroll’s The Red Queen’s Race, running as fast as you can, just to stay in the same place.
Money is like any other commodity - if there’s too much, it’s not worth as much in terms of other things. When few people have money, a loaf of bread is worth a dollar, say. When everyone is swimming in cash, that bread is worth $10.
Interest rates are just a way of making borrowing expensive, since borrowing is one way of creating money. SO the Fed’s big job is setting interest rates to cool things off when they are too hot and too much money is being “created” - or loose off the spigots if nobody is borrowing money and things are getting tight.
If the Treasury prints money and sets it in a vault, and only puts it in circulation by taking other money out of circulation, then it doesn’t matter how much is printed it didn’t make a dent. Bad bills out, good bills in. No change to wealth, no change to amount of currency circulating.
If the Treasury prints money and then the government just takes the newly printed bills and spends them, then it created money out of nothing. The money came from thin air. That changes the amount of currency without changing the amount of wealth. Ergo, the value of each item of currency goes down.
Cecil is right in both cases.
People who claim that inflation in the U.S. can be solved by the government turning off the printing presses simply are wrong. President Ronald Reagan himself said something similar.
In the U.S., the amount of paper and coins is a tiny fraction of our actual money supply. Most of the ready money supply sits in various bank and investment accounts. The money supply in the U.S. actually grows or shrinks depending how much money the banks lend out, and the Fed can increase the money supply by simply lowering the reserve requirement banks have. In a modern economy, money is created and destroyed all the time without a single printing press being turned on.
Now, it is possible for any country to print enough bills to cause rampant inflation. The problem is attempting to distribute it to the nation. If the U.S. did this, it really wouldn’t due to much since most of the excess bills would simply sit in a warehouse unused. People don’t need paper money. However, if the government printed out enough bills to buy back all of the debt, and then forced repatriation of the debt (debtors can call in their debt at any time), it is possible for the U.S. to cause massive inflation by running the presses. This is sort of what happened in Germany after World War I.
So, the question is not just printing money, but distributing it. Forcing payment of debt in devalued bills will do the trick. So would loading it on airplanes and dumping out into the city streets. (Interesting question: The largest bill the U.S. produces is the 100 dollar bill. If the U.S. printed enough money to cover the U.S. debt, then loaded it up in airplanes and dumped it in an even layer across the land, how thick would this layer of Bennies be?)
In a country like Zimbabwe with an extremely large public sector, printing money and distributing it to employees did the trick (especially the military). Actually, it was more complex than that. Not only did Zimbabwe distribute massive amounts of bills, but the government through sheer incompetence also destroyed the value of their economy while they’re at it.
For example, seizing farmland without compensation caused the value of farmland to drop to zero. Who is going to buy a farm that will be seized by the government? Who will lend money against it? So, it wasn’t just the printing of the bills, it was also the destruction of the value of the economy too. More bills, and less to buy. The will give you a 1,000,000% inflation rate right there.
“Printing Money” is just an expression. In a modern electronic-money economy, it really means loosening the “purse strings” of the central bank. At its simplest, that means really low interest rates, so people (and companies) borrow with abandon and money is flying around. In worse circumstances, it also means the government treating itself like a bank - hand out money as if they were IOU’s, whether it’s payroll or stimulus packages.
Essentially this is what the central bank does. I transfer money from bank A to B, or pay my Visa bill from my account. Essentially, all these institutions trust each other, and at the end of the day, they tally up the final score and whoever is short has to send “money”. not a truck full of cash, but an IOU from someone - another bank or the central bank - who loans them the cash.
Part of the problem recently was that as banks started failing, other banks were so unsure of other banks that tehy statred severely restricting how much of an IOU they would float from another bank. The fed had to step in and “advance the money” (i.e. take an IOU from the troubled bank). Now the other bank had an IOU from the fed instead who (we hope) wasn’t going to default. But it was the fed’s problem to keep track of these and straighten out any bank that looked like it’s IOU’s at the fed was getting too big.
If the central bank hands out too much money (IOU’s) people will realize there is a lot of money floating around, and prices for everything would rise. In the last year, real reconcilliation would mean that the money handed out as mortgages would come from somewhere - the pockets of anyone unlucky enough to be stuck with the hot potato of defaulted mortgage debt. Unfortunately, that was everyone - your bank, your pension fund, your municipal government’s capital fund, your 401K, even your insurance company in their contingency fund. rather than rebuild our economy from the ground up, the government has taken on that debt. Lucky bank shareholders, unless your shares were Bear-Sterns or Lehman Bros.
As long as people trust the central bank, all those IOU’s eventually come back to the central bank. When people want bills, or gold, or diamonds - then things get worse.
in Zimbabwe, where most business is done with cash not electricity, the problem was to supply cash. Like Nicaragua in the 80’s the solution was to take bills that came back to the bank and overprint them with a few extra zeroes. There’s a move to inspire confidence.
Of course, few actually people bought zimbabwe farmland. Under the guise of “restoring it to the people” the land was mostly given away to close friends of the president, the police and army people, and any other gang of thugs who enforced the status quo government. They now have an extra incentive to not let the government fall, and to beat and kill anyone who says “but that land should be mine”.
When I was a kid, there were stories about some podunk bank every so often being taken to the cleaners by someone who exchanged a bunch of Reichmarks as Deuschmarks. the inflation money of Weimar Germany. Last I heard was early 90’s(?) when there was a bank strike in Ireland, and some unlucky clerk at a store exchanged a bunch of what were apparently large bills that were probably the equivalent of five cents.
I think for a lot of people, “printing money” is still seen as a literal term. Yes, a lot of the economy exchange is via electronic transactions, but people still think of cash.