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Can you please ELI5 why a government would have to borrow money that it is able to print itself?

krupan 6y ago
If you could get cash now by promising to pay it back with something you can manufacture for (nearly) free, wouldn't you make that deal too?
- krupan 6y ago
  The catch of course is that there really isn't a guarantee that the U.S. will be able to keep printing dollars without the value going down
throw0101a 6y ago
Strictly speaking, in the modern era, it is not "a government" that decides to print money, but rather the central bank, which are considered independent on government and do (should) not follow the orders of politicians. The central bankers are hired for a fixed-term (though renewable) and are given a mandate: > The Federal Reserve works to promote a strong U.S. economy. Specifically, the Congress has assigned the Fed to conduct the nation’s monetary policy to support the goals of maximum employment, stable prices, and moderate long-term interest rates. When prices are stable, long-term interest rates remain at moderate levels, so the goals of price stability and moderate long-term interest rates go together. As a result, the goals of maximum employment and stable prices are often referred to as the Fed’s “dual mandate.” * https://www.federalreserve.gov/faqs/what-economic-goals-does-federal-reserve-seek-to-achieve-through-monetary-policy.htm https://www.federalreserve.gov/faqs/what-economic-goals-does... If 'printing money' helps to accomplish that mandate they will do so, but they will (theoretically/ideally) not print money just because it would be convenient for political purposes. It should also be noted that in most/may modern economies, private banks actually create the money the supply through issuing loans: * PDF: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy https://www.bankofengland.co.uk/-/media/boe/files/quarterly-... Good video by Ben Felix on the topic: * https://www.youtube.com/watch?v=K3lP3BhvnSo https://www.youtube.com/watch?v=K3lP3BhvnSo
- AnimalMuppet 6y ago
  Right, and this is specifically to avoid things like hyperinflation. Do you trust Congress to manage the money supply? I don't. I think they'd use it to buy votes rather than to do what's good for the country, and the result would be disaster.

If you could get cash now by promising to pay it back with something you can manufacture for (nearly) free, wouldn't you make that deal too?

krupan 6y ago
The catch of course is that there really isn't a guarantee that the U.S. will be able to keep printing dollars without the value going down

throw0101a 6y ago

Strictly speaking, in the modern era, it is not "a government" that decides to print money, but rather the central bank, which are considered independent on government and do (should) not follow the orders of politicians. The central bankers are hired for a fixed-term (though renewable) and are given a mandate: > The Federal Reserve works to promote a strong U.S. economy. Specifically, the Congress has assigned the Fed to conduct the nation’s monetary policy to support the goals of maximum employment, stable prices, and moderate long-term interest rates. When prices are stable, long-term interest rates remain at moderate levels, so the goals of price stability and moderate long-term interest rates go together. As a result, the goals of maximum employment and stable prices are often referred to as the Fed’s “dual mandate.” * https://www.federalreserve.gov/faqs/what-economic-goals-does-federal-reserve-seek-to-achieve-through-monetary-policy.htm https://www.federalreserve.gov/faqs/what-economic-goals-does... If 'printing money' helps to accomplish that mandate they will do so, but they will (theoretically/ideally) not print money just because it would be convenient for political purposes. It should also be noted that in most/may modern economies, private banks actually create the money the supply through issuing loans: * PDF: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy https://www.bankofengland.co.uk/-/media/boe/files/quarterly-... Good video by Ben Felix on the topic: * https://www.youtube.com/watch?v=K3lP3BhvnSo https://www.youtube.com/watch?v=K3lP3BhvnSo

AnimalMuppet 6y ago
Right, and this is specifically to avoid things like hyperinflation. Do you trust Congress to manage the money supply? I don't. I think they'd use it to buy votes rather than to do what's good for the country, and the result would be disaster.