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Would the Government Printing Money Cause Inflation?
Por Mano - Wednesday, May. 25, 2011 at 6:52 AM


We're in a recession.

A recession occurs when there is a shortage of money circulating in the economy. Money gets a bit too scarce for people to be able to buy all the goods that industry wants to sell them and all the "services" government wants to force them to pay for (through the process of extortion known as " tax").

The obvious, simple solution then is for government to print more money and spend it into circulation. We're told the economy is, say, $50 billion short of dollars. Okay, so the logical answer is for the government to print $50 billion and spend it into circulation, for example by paying pensions, financing roads, schools, hospitals, grants for industry and reducing income tax at the same time.

"Oh, you can't do that!" we are told.

"Why not?" We ask.

"Because of INFLATION!" Comes the reply, inflation being this demonic thing that magically heaves up from the bowels of hell the moment anyone dares whisper the notion of government printing some money.

Well, let's take a look at that.

Inflation is a situation in which TOO MUCH MONEY has been printed and put into circulation. Simplify this a bit and imagine an economy in which there are a billion items for sale. If there are a billion dollars in circulation in that economy, the average cost of every item will be a dollar.

If you suddenly increase the number of dollars in circulation to 2 billion but the number of items produced and offered for sale remains a billion (there is no increase in production to match the increase in circulating money), the average price of each item will increase to 2 dollars. The value, the SPENDING POWER of your dollar will have halved.

Okay, in essence, that's inflation.

It comes about not because government prints money but because government prints TOO MUCH MONEY.

We can also see that rising prices and a fall in the buying power of the dollar are signs that we have inflation and too much money is being circulated.

Therefore all government has to do when it prints money is monitor the economy and work towards KEEPING THE PURCHASING POWER OF THE DOLLAR STABLE.

If some inflation starts to show up, the government holds off on printing money and works to get more production going until the purchasing power of money stabilizes.

It is not beyond the wit of Man, or even government, to do this. Currently we "control inflation" using the crude mechanism of interest rates and we've had nothing BUT inflation! Evidently the hit-and-miss guesswork of tinkering with the cost of borrowing is okay but direct control of money supply by a government answerable to the electorate isn't (and nobody asks: 'what on earth does the cost of borrowing have to do with money supply?')!

Once all of us understand these simple principles we can all keep an eye on things and make sure the government is behaving itself. This of course would require something of a change of operating basis as we are presently kept in the dark and PREVENTED from understanding simple principles so that nobody can tell what government is up to.

Truth of the matter is that SOMEONE has to print money and get it into circulation. The only way to get it into circulation is to LEND it to people (a VERY bad idea: if you read my free books you will understand why) GIVE it to people (can be good if done in the form of grants and effective measure to increase production) or PAYING PEOPLE to produce things such as building roads, bridges, space ships, whatever the society needs and wants.

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