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"Sometimes the only thing for a collapsing economy to do _is_ print money. It's what a failing state will do to prevent itself from becoming a failed state. "
by edblarney 10y ago
"Sometimes the only thing for a collapsing economy to do _is_ print money. It's what a failing state will do to prevent itself from becoming a failed state. "
No, this is upside down.
Printing money to pay debts, salaries - is what a 'failing state' will do to absolutely guarantee they will fail.
Central banks don't print money - they trade bonds or other assets in exchange for currency, and they do so at a rate to allow monetary expansion as the economy grows.
Cynically, you could say 'government issues debt, which is bought by central bank in exchange for $' which is very much like printing money, but it's not quite.
And 'gold' ... the amount of gold is so small it doesn't really affect anything.
A 'failing state' needs to restore confidence in it's institutions in order to get out of the hole, the last thing it can do is print money willy nilly.
The anti-populist measure would be to cap/cut government salaries, 'de facto' default on bonds - this is obviously a bad signal, but not as bad as printing money. A 'quiet default' i.e. signalling that 'there is no way we can repay so you'd better negotiate with us' is the pragmatic thing to do.
- awongh 10y agoah, interesting. My understanding of central bank practices was that 'government issues debt, which is bought by central bank in exchange for $' == printing money - but they are not synonymous? So if you no longer have the paper trail of things being bought and sold, who keeps track/makes public the amount of currency in circulation in this case? If simply printing more money is a bad signal, why not just keep it secret?
- colechristensen 10y agohttps://en.wikipedia.org/wiki/Fractional-reserve_banking https://en.wikipedia.org/wiki/Fractional-reserve_banking There's a paper trail. It's just that when the Fed buys something the money is pulled from thin air. When the debt is paid back the principal returns to thin air, the profit goes to the US Treasury. Not all government debt is purchased by the treasury though – it only does that in special circumstances to moderate the financial system. Most of is is purchased domestically and much of that by other pieces of government. And you can't keep it secret. It's like supply and demand. More money means prices naturally raise because more people have more money to spend and will be willing to pay a higher price.
- edblarney 10y agoNo - it's not 'printing money'. Because government debt first has to be bought by someone on the open market, for some market-based price. Only then can they go to the central bank. The Central Bank does not buy from the Government. But there's a systematic problem there I would admit.