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You have to explain why printing a lot of money would cause inflation in the first place. What GP is saying is that if the owners of treasuries were unhappy wi

You have to explain why printing a lot of money would cause inflation in the first place. What GP is saying is that if the owners of treasuries were unhappy with those treasuries and preferred holding on to cash, the government could just create that cash and nothing would change. This would not change prices, since if the owners of treasuries just swapped those treasuries for cash, businesses would not see their demand increase, and nobody would have any reason to raise the prices they ask.

mtgx 14y ago
What do you mean nothing would change? If the Federal Reserve all of the sudden prints 10% of the dollars in existence to pay the US's debt, won't that devalue everyone else's salaries and such by around 10%?
- excuse-me 14y ago
  No it would devalue them by much more Everyone would stop accepting $ since there was a risk that the government would print 20% next month. The value of the US $ would crash as other countries suddenly stopped accepting it or wanted much more of it to cover the risk - so the price of imports would rise. The price of oil would soar (in $) or only be available from some markets if you paid in euro/gold.
- nhaehnle 14y ago
  That depends on what happens with those dollars. I guess you can best sum it up like this: Printing money is not inflationary, but spending money can be. Those 14 trillion USD in government debt is held in bonds precisely because those wealthy enough to own them do not want to spend them. So if, all of a sudden, the Fed prints a lot of dollar bills to pay the US debt, what this really means at an operational level is that they print those dollar bills to buy treasuries on the open market and/or buy directly from the government. This simply means that the demand for treasuries increases, which drives up the price of treasuries, which is equivalent to driving down the interest rate on treasuries. To sum it up: if the Fed does what you say, the interest rates will drop further closer to zero, but that's pretty much all that will happen. Now if you think that decreasing interest rates can have secondary effects, then we can talk about those. But given that the interest rate is almost 0% already anyway, it seems unlikely that a small downward change would have a big economic impact. Perhaps you're confusing paying back the debt with actual spending. Paying back the debt is simply an asset/liability swap that doesn't change anybody's wealth, and therefore cannot have inflationary effects. Actual spending is something else, and can be inflationary - though in the current economic climate, you could probably increase government spending significantly (by a trillion or so per year) without creating inflationary trouble.
- MaysonL 14y ago
  You've perhaps heard the term "quantitative easing" thrown around in the news media lately? QE is the Fed printing money; lots and lots of money. Around 2 trillion so far. And very little has changed.

mtgx 14y ago

What do you mean nothing would change? If the Federal Reserve all of the sudden prints 10% of the dollars in existence to pay the US's debt, won't that devalue everyone else's salaries and such by around 10%?

excuse-me 14y ago
No it would devalue them by much more Everyone would stop accepting $ since there was a risk that the government would print 20% next month. The value of the US $ would crash as other countries suddenly stopped accepting it or wanted much more of it to cover the risk - so the price of imports would rise. The price of oil would soar (in $) or only be available from some markets if you paid in euro/gold.
nhaehnle 14y ago
That depends on what happens with those dollars. I guess you can best sum it up like this: Printing money is not inflationary, but spending money can be. Those 14 trillion USD in government debt is held in bonds precisely because those wealthy enough to own them do not want to spend them. So if, all of a sudden, the Fed prints a lot of dollar bills to pay the US debt, what this really means at an operational level is that they print those dollar bills to buy treasuries on the open market and/or buy directly from the government. This simply means that the demand for treasuries increases, which drives up the price of treasuries, which is equivalent to driving down the interest rate on treasuries. To sum it up: if the Fed does what you say, the interest rates will drop further closer to zero, but that's pretty much all that will happen. Now if you think that decreasing interest rates can have secondary effects, then we can talk about those. But given that the interest rate is almost 0% already anyway, it seems unlikely that a small downward change would have a big economic impact. Perhaps you're confusing paying back the debt with actual spending. Paying back the debt is simply an asset/liability swap that doesn't change anybody's wealth, and therefore cannot have inflationary effects. Actual spending is something else, and can be inflationary - though in the current economic climate, you could probably increase government spending significantly (by a trillion or so per year) without creating inflationary trouble.
MaysonL 14y ago
You've perhaps heard the term "quantitative easing" thrown around in the news media lately? QE is the Fed printing money; lots and lots of money. Around 2 trillion so far. And very little has changed.