Lots of people on TikTok recently think that printing more money can resolve a multitude of economic problems, including national debt and a recession. There is a misconception that printing more money can alleviate the economic problem incurred from the ongoing COVID-19 pandemic, which has harmed the global economy significantly. The US is currently in a state of national debt and social media users on platforms like TikTok have questioned why the government has not simply just printed more money. What people do not realise is this will cause even more problems and put the country in a worse-off situation.
The immediate effect of printing more money is inflation. Inflation refers to the general rise in the price level in an economy over a given period of time. It is inevitable – products had completely different prices a few decades ago. However, printing more money will likely lead to hyperinflation, which is accelerating inflation. It is detrimental to the economy because it erodes the real value of the local currency and leads the prices of all goods to increase by a large proportion. Everyday goods are no longer affordable to the general public if their prices are suddenly so high and their wages become essentially worthless. If the population has more access to printed money, everyone will want to purchase more products since they now have extra cash. This increased demand for goods incurs their prices to increase. To accommodate the situation, firms would then have to hire more employees and this higher demand would increase their wages. When these employees witness the inflation happening around them, they will also demand higher dollar wages to increase their own purchasing power. It will be incredibly difficult for firms to make profits in these cases. This demonstrates how damaging inflation would be to the economy.
Many people have been asking why the government in particular cannot just go ahead and print more money. What they do not realize is that the government is not the one who prints the money – every country has their own central bank like the Federal Reserve in the US. Its purpose is to supply money to the country in the local currency. While influencing the supply of money, they also attempt to promote non-inflationary growth within the economy. If the Federal Reserve were to print more money, it has to be accompanied by an increase in economic activity that could match the amount of money being added into people’s pockets. If not, inflation would become even worse. The Federal Reserve and other central banks are responsible for money supply and act independently from the government, although they sometimes coordinate with each other. The Federal Reserve is only concerned with the health of the economy instead of broader government objectives and concerns.
Furthermore, international investment could be negatively affected. If the value of the local currency depreciates because money is worth less since there is an oversupply in the economy, international investors are less likely to continue investing in that country. They would lose confidence in that country. Exchange rates could drop significantly and leave everyone worse off. This would undoubtedly affect the local economy as there would be less cooperation between nations.
Printing money will not solve any economic problems – it will only exacerbate them. Money is simply a facilitator of exchange between people and acts as a middleman in trade. Printing more money affects the terms of the trade between money and goods and will not do anything to resolve the problems. Instead, the Federal Reserve and other central banks can engage in quantitative easing, which refers to specific programs of money printing in efforts to stimulate economic growth. These programs are completed over time so as to not trigger hyperinflation. Printing more money at once seems like a feasible idea at first glance but inevitably invites more problems than it can solve.
Sources
https://www.econ.iastate.edu/node/673
https://theconversation.com/curious-kids-why-dont-poorer-countries-just-print-more-money-107633
Images
https://www.wsj.com/articles/a-brief-history-of-u-s-inflation-since-1775-1450115182
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