3 ms·

Why do wars tend to devalue the dollar?

by tines 6mo ago

NoraCodes 6mo ago
The government issues a lot of money to pay for the war but doesn't tend to increase taxes enough to make up for it, so inflation is high.
moralestapia 6mo ago
(Guess) A lot of money is printed. Also, war is not an activity that generates wealth (but to some it does, obviously).
betaby 6mo ago
Money printing and expensive bonds?
kelseyfrog 6mo ago
Wars usually involve the destruction of assets. If the same amount of money chases fewer assets, the money has less value.
elictronic 6mo ago
Weapons cost ALOT and do very little to increase the future economy. It's the issue Russia is facing right now in Ukraine. Even if Putin wanted to stop, his economy has turned entirely wartime, when it ends the country crashes on itself.
- rightbyte 6mo ago
  Crashes? How is that possible. You could take the money spent on bombs and do anything with it including helicopter money or digging holes and it would be better spent.
t-3 6mo ago
In addition to the already-stated causes of government issuing currency necessary to meet war spending and the fact that war spending produces destruction of economic capability rather than development, wars tend to introduce trade barriers and divert resources away from productive tasks. Whether barriers are legal (tariffs, embargoes), or simply higher premiums due to increased risk, less trade happens, which raises prices (inflation). Economists also really hate number-go-down even when down is good, so policy is oriented towards making sure deflation never gets a chance in the interwar development periods.
kmeisthax 6mo ago
Only half of the incidents listed were actually full-scale wars (WWI and II). The other two incidents are an oil shock and a pandemic. The commonality between all four of these incidents is that they correspond to severe supply shocks: - During WWI and WWII, industrial supply was rerouted by force to the war effort, leaving normal consumer demand unfulfilled. - During the oil crisis of the 70s, a critical energy input to the American economy massively increased in price due to sanctions placed on America. - During the COVID-19 pandemic, a significant chunk of workers were paid not to work, as a form of deliberate supply destruction to avoid the spread of a novel coronavirus. In a "normal" economy, supply is flexible enough that you can print money and nobody even notices. The supply curve is smooth and gradual, so prices only rise a little. When supply is constrained, however, prices rise to whatever value is necessary to curtail demand, because they have to. The supply curve is a brick wall.

Why do wars tend to devalue the dollar?

by tines 6mo ago

Why do wars tend to devalue the dollar?

The government issues a lot of money to pay for the war but doesn't tend to increase taxes enough to make up for it, so inflation is high.

moralestapia 6mo ago

(Guess) A lot of money is printed. Also, war is not an activity that generates wealth (but to some it does, obviously).

betaby 6mo ago

Money printing and expensive bonds?

kelseyfrog 6mo ago

Wars usually involve the destruction of assets. If the same amount of money chases fewer assets, the money has less value.

elictronic 6mo ago

Weapons cost ALOT and do very little to increase the future economy. It's the issue Russia is facing right now in Ukraine. Even if Putin wanted to stop, his economy has turned entirely wartime, when it ends the country crashes on itself.

rightbyte 6mo ago
Crashes? How is that possible. You could take the money spent on bombs and do anything with it including helicopter money or digging holes and it would be better spent.

t-3 6mo ago

In addition to the already-stated causes of government issuing currency necessary to meet war spending and the fact that war spending produces destruction of economic capability rather than development, wars tend to introduce trade barriers and divert resources away from productive tasks. Whether barriers are legal (tariffs, embargoes), or simply higher premiums due to increased risk, less trade happens, which raises prices (inflation). Economists also really hate number-go-down even when down is good, so policy is oriented towards making sure deflation never gets a chance in the interwar development periods.

kmeisthax 6mo ago

Only half of the incidents listed were actually full-scale wars (WWI and II). The other two incidents are an oil shock and a pandemic. The commonality between all four of these incidents is that they correspond to severe supply shocks: - During WWI and WWII, industrial supply was rerouted by force to the war effort, leaving normal consumer demand unfulfilled. - During the oil crisis of the 70s, a critical energy input to the American economy massively increased in price due to sanctions placed on America. - During the COVID-19 pandemic, a significant chunk of workers were paid not to work, as a form of deliberate supply destruction to avoid the spread of a novel coronavirus. In a "normal" economy, supply is flexible enough that you can print money and nobody even notices. The supply curve is smooth and gradual, so prices only rise a little. When supply is constrained, however, prices rise to whatever value is necessary to curtail demand, because they have to. The supply curve is a brick wall.