Reasons why the government can’t print more money to get out of debt & make their country ‘Rich’
Ever wondered why the government of different countries can’t just print money to get out of debt or even make their country rich? – The perfect answer has been answered here. When a country tries to get richer and solve its needs by printing more money, it hardly works. This is so because if everyone…
Ever wondered why the government of different countries can’t just print money to get out of debt or even make their country rich? – The perfect answer has been answered here.
When a country tries to get richer and solve its needs by printing more money, it hardly works. This is so because if everyone has more money, prices go up instead of remaining stable or even going down.
The process then backfires because people now tend to need more and more money to buy the same amount of goods that was initially cheap.
This happened recently in the history of Zimbabwe, in Africa, and in Venezuela, in South America, when these countries printed more money to try to make their economies grow.
As the printing presses sped up, prices rose faster, until these countries started to suffer from something called “hyperinflation”. That’s when prices rise by an amazing amount in a year.
Another interesting thing about printing more notes as a country is rising prices:
To get richer, a country has to produce and sell more things – whether goods or services to within or outside its own country. This makes it safe to print more money, so that people can buy those extra things.
If a country prints more money without making more things, then prices just go up.
This is because everyone will rush to purchase the item making it go higher as it shorts in the market.
The money printed then becomes worthless.
On the part of the government, attempt to print more money than necessary into the system results in inflation (Inflation is a quantitative measure of the rate at which the average price level of a basket of selected goods and services in an economy increases over a period of time.)
Governments borrow by selling government bonds/gilts to the private sector. Bonds are a form of saving. People buy government because they assume a government bond is a safe investment. However, this assumes that inflation will remain low.
If governments print money to pay off the national debt, inflation could rise. This increase in inflation would reduce the value of bonds.
If inflation increases, people will not want to hold bonds because their value is falling. Therefore, the government will find it difficult to sell bonds to finance the national debt. They 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.
When Government can print money?
But it’s not true that a country can never get richer by printing money. This can happen, if it doesn’t have enough money to start with. If there’s a shortage of money, businesses can’t sell enough, or pay all their workers. People can’t even borrow money from banks, because they don’t have enough either.
In this case, printing more money lets people spend more, which lets companies produce more, so there are more things to buy as well as more money to buy them with.