Why the U.S Should not Print more Money.
With the Covid crisis the United States Government has been sending stimulus checks to a lot of its lower and middle class citizens, so the national debt has gotten bigger leading many to think the solution is to print more money roughly around $1.9 trillion dollars. Some believe it’s better for business, will stimulate the economy, and we are already in a deflation. But it will cause more inflation, risk hyperinflation and destroy the value of the dollar.
How do we know printing money causes inflation? We know it will because if output increased by 5%. and the money supply increases by 7%. Then inflation will be roughly 2% (Pettinger, Tejvan, and Doty) but printing $1.9 trillion would be on a bigger scale. This leads to the question what is inflation and how does it affect things? If you print more money, the amount of goods doesn’t change. However, if you print money, households will have more cash and more money to spend on goods. If there is more money chasing the same amount of goods, firms will just put up prices. (Pettinger, Tejvan, and Doty). But, what about the people think that we are currently in a deflation, the White House has made several comments that we are actually in a inflation we expect measured inflation to increase somewhat (Assessing Inflation) and they also said markets are pricing in inflation that is consistent with our expectations of some economic heat in the short-term as the economy reopens. (Assessing Inflation)
Printing more money also risks hyperinflation so how does hyperinflation happen? Hyperinflation can happen when the government prints more money in response to a crisis This, of course, lowers supply which increases demand. (Probasco) Why is this a problem? In addition to the $1.9 trillion about to pour forth $1 trillion in savings that piled up during the pandemic remain unspent. (Nelson). So is Inflation better for companies because the consumer has more money? Not exactly you could be forced to increase your prices. It’s much better to gradually increase your prices, rather than a sudden, larger increase as consumers could respond negatively. (How Does) How else is business affected? Consumers may hold back on spending until they enter a safer economic climate. With consumers holding back, businesses can, unfortunately, feel the brunt of it with a potential reduction of sales. This effect of inflation can be detrimental to business sales and their stability. (How Does)
Lastly how does inflation affect currency? from 1922–1923 Germany faced a hyperinflation when trying to pay off debt from WWl so when they printed more money it caused the German D-Mark to devalue against the currencies who didn’t have inflation.(Pettinger, Tejvan, and Doty) and the government will have to pay higher interest rates to attract investors.If the government print too much money and inflation get out of hand, investors will not trust the government and it will be hard for the government to borrow anything at all.Therefore, printing money could create more problems than it solves. (Pettinger, Tejvan, and Doty). Some would say printing money would stimulate the economy but, inflation creates distortions in economic decisions concerning saving and investment when the tax system is not fully indexed to inflation. (Does Inflation) also That uncertainty can hinder economic growth. First, it adds an inflation risk premium to long-term interest rates and it complicates the planning and contracting by business and labor that are so essential to capital formation. ( Does Inflation)
To conclude printing money would be harmful for the economy and business at this point and wouldn’t help. It would only make the current inflation worse as it sits at 1.4% for 2021and is still rising. Unfortunately it can be very difficult to see how printing $ 1.9 trillion would affect the current inflation because it depends on how the economy and businesses react. Inflation is normal but once it gets too high or out of control it can be very difficult to fix. Printing money is not the solution to the problem because it can hurt the economy, businesses, and the value of the dollar.
Works Cited
“Federal Reserve Bank of San Francisco. “Does Inflation Hurt Long-Run Economic Growth?” Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, 1 June 1998,”
www.frbsf.org/education/publications/doctor-econ/1998/june/inflation-economic-growth/.
“How Does Inflation Affect Business?” Esme Loans,”
esmeloans.com/blog/how-does-inflation-affect-business.
“Nelson. “Inflation Fear Lurks, Even as Officials Say Not to Worry.” The New York Times, The New York Times, 10 Mar. 2021,”
www.nytimes.com/2021/03/10/business/economy/inflation-markets-federal-reserve.html.
“Pandemic Prices: Assessing Inflation in the Months and Years Ahead.” The White House, The United States Government, 12 Apr. 2021,”
www.whitehouse.gov/briefing-room/blog/2021/04/12/pandemic-prices-assessing-inflation
-in-the-months-and-years-ahead/.
“Pettinger, Tejvan, and Doty. “The Problem with Printing Money.” Economics Help, 21 May 2020,”
www.economicshelp.org/blog/634/economics/the-problem-with-printing-money/.
“Pettinger, Tejvan, et al. “Why Printing Money Causes Inflation.” Economics Help, 12 Dec. 2018,”
“Probasco, Jim. “Are We Headed for a Hyperinflation?” Investopedia, Investopedia, 3 Mar. 2021,”