Why Can't We Print More Money?

Why is it a big deal to print more money?

Have you ever wondered why can’t just government print more money to pay off their debts or just make the poor people rich? 

It may seem like a silly question or make you look like a faux pas, but trust me it’s not something to be embarrassed about. The question alone stands for more than 1.34 billion searches on Google. 

Now, you may think a country can print money equivalent to its gold reserves but hey, that was the old case scenario also if that was the case then what about the countries who do not have gold reserves or say a very limited amount, will they all remain poor? 

Well, you see economics doesn't work like that. It has a very logical reason which is universal in nature. The tightest answer to this question is INFLATION. Inflation is nothing but a rise in the price of goods and services occurring in loss of currency value.

But hold on.. it still doesn't make sense!! 

So let us try to make this question a reality....


Let us imagine that Indian government suddenly decides to make their people very happy (rare in our case :p) by printing more money - raising wages, all possible payouts even assuming that they hand over a bag full of money to each one.

 Now that sounds interesting....


WHAT DO WE DO WITH ALL THIS MONEY?

Well, some of that money will surely be saved or invested but still, most of the money will be spent. Yeah, it will, the first thing I would do is go out and buy a brand new BMW but guess what I’m not the only one who runs out to buy a BMW and this causes some problems to the showrooms. 

Why do they have to keep the prices the same if they don’t have enough cars to sell it to everyone? My friends, neighbours, relatives and thousands of their brothers and sisters also want to have a BMW so now the showroom owner decides to raise the price and will have a massive Inflation


WHAT DOES THAT EVEN MEAN?

It means the money will be worthless, in other words, if earlier you had Rs 25,00,00 in your pocket and you could buy a BMW  and now you have Rs 50,00,000 in your pocket (after printing more money) but after BMW showroom raised the price it does not cost that cheap anymore. 

The same BMW is now costing Rs 50,00,000. So earlier you could buy it for Rs 25,00,00  at the moment you could only buy half of it. 


Your money is not as valuable as they were before. If you see the money itself does not have any value (intrinsic value =0) it’s only considered valuable because it can buy things. So coming back to the example when the prices increases the demand also increases but supply goes down this causes an ever-increasing rise of the car. 

This is nothing but Inflation or we also call it quoting Indian parents as "Money does not grow on trees"

Man is proven to make mistakes.. which only happens if you try out all possibilities. 

Even in this case, there were few countries like Zimbabwe, Hungry, Greece decided to print money solely to pay off their debts.


WHAT HAPPENED IN ZIMBABWE?

In 2008, Zimbabwe suffered extremely high inflation also called as hyperinflation. It was a faulty decision made by Mr President to print excess money to pay off debts. The prices of the goods and services doubled every 24 hours. Hell no!! You know what that means?!

 A loaf of bread cost millions. It meant fruits or vegetables which were sold for pennies before now costs trillions of money.

 So, who wants to be a BILLIONAIRE now?


Well of course, In 2008 we were all facing the global recession which jeopardized almost every country causing a huge financial loss - but the fact that printing more money does not always solve its debt crisis. 

Just to give you all some facts about Hyperinflation and how hazardous it can be to kill its economy...

 Optimum level of inflation  1-3%
 India's Inflation  8.35% (in 2008) usually around 4-5%
 U.S Inflation  5.4 %  (2008) usually around 2%
 Hyper-Inflation 50%
 Zimbabwe's Inflation  6.5 sextillion %
 i.e. 65000000000000..(it has 22 digits)


Now, who hasn't watched Money Heist/La Casa De Papel? I'm sure most of us have seen it on Netflix, it shows how they try to enter the Royal Mint Bank of Spain and print billions of euros in 11 days of seclusion. 
This show is one of my favorites because here the professor challenges the law of fiat money 

The amount they are printing is close to 2 billion euros, nonetheless compared to the size of the Euro economy. So yes, they are stealing from anyone who holds cash, but in absolute terms, it would not even be noticeable, and given that money would be continually printed anyway there is virtually no difference. 
It means that the inflation rate would be close to negligible.
 
  

Who said watching telly couldn't be educational? (laughing in Denver's style)


 So next time if your parents or anyone asks you about money growing on trees you say "If money grew on trees it would be as important as the leaves"

Now, that's what we call a come back... Game!

Hope I made this article as reasonable and useful to you guys!

Show some love for my first post and comment for feedback/queries... 

Post a Comment

33 Comments

  1. Very well Framed impressive !

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  2. Nowadays its really very important to understand economics & finance. You really cant give any excuses of not knowing these no matter from which background you belong. The world is changing every second, one second you can be a millionaire whereas at the other a big "Zero". For understanding the changing dynamics knowing these basics to make thoughtful & informed decisions we need to understand the basic concepts, which my friend has explained beautifully. Keep writing Champ.. Waiting for more. :) (y)

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    1. This comment has been removed by the author.

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    2. Im sure it well help people to get a basic understanding. Thank you for the detailed feedback! :)

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  3. Great piece of work!! Gives a broader vision of different aspects. .. Keep up the good work Chang!!!💙

    ReplyDelete
  4. Nice charmi 👍 good framing

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  5. Very well written and you've put it in simpler words for everyone to understand

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  6. It actually gave me clarity...... got to learn from your blog..

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  7. Jimit Makwana here

    Very nice expalnation

    ReplyDelete
  8. Very well written!!!!
    Simple , clear, informative , attention to details, comprehensive yet precise!!!
    Keep up the good work!!!
    Waiting for more!!!

    ReplyDelete
    Replies
    1. Thank you so much for the detailed feedback! :)

      Delete
  9. Also in international market dollar is the main indicator as gold earlier was .If indian government print more money they have to pay more in exchange as rupee is depreciating against dollar as there is huge trade defecit already and institutional FPI pulling back money from stock exchange.More printing money will increase more supply in the market which will reduce interest rate and inflation will increase.I guess one of the solution would be rupee should perform well in comparision with other currency.India should be self reliant and there would be also increase in domestic exports causing trade surplus instead of deficit.

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    1. Yes, agreed but No country can be self reliant. It's impossible to that because resources are not evenly spread across countries. But yes we can definitely work on the exports more than the imports.

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  10. very well written and finely explained

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