How Printing Money Leads to Inflation

Professor Antony Davies explains the many miss-understandings about Government Debt.

Myth number one, the government owes $20 trillion. How much is $20 trillion? Suppose you go to Germany, and in Germany, you go to every town. In every town, you visit every store. In every store, you look at every shelf and grab everything that is for sale. The amount of money you spend will not be $20 trillion. If you go to Germany and then to France and you go to every town, and within every town, you go to every store. In every store, you look on every shelf and you buy everything. You still will not have spent $20 trillion. You can go to England and while you’re there, you can go to the North Countries and buy everything that’s for sale, and you still will not have spent $20 trillion. In fact, to spend $20 trillion, you have to go to every country in Europe, visit every town, in every town, go to every store. In every store, look on every shelf and buy everything. And then you will have spent about $20 trillion.

But the myth is that this is how much money the government owes. It turns out that there’s more, called unfunded obligations. Unfunded obligations is money the Federal Government has promised but which it does not and will not have the money to pay. Largely, this consists of promises of retirement and medical benefits. If you would take the present value of all the future promises of retirement and medical benefits the government has made and subtract from that the amount of money that’s in the government’s Social Security and Medicare trust funds, and then subtract from that the amount of money the Federal Government anticipates collecting under the current law from future Social Security and Medicare taxes, you will still have an amount of money left over that the government does not have.

LEARN MORE:
How Big is the U.S. Debt? (video): A stunning visual representation of the ever-growing amount of debt and unfunded liabilities being accumulated by the federal government, narrated by Prof. Antony Davies.
How Should Governments Deal With Debt? (video): Nations that spend themselves into debt face very difficult choices. Prof. Steve Davies describes the three main choices that governments have to fix their debt problems.
Debts, Deficits, and Spending Cuts (video): Prof. Jeff Miron of Harvard University explains we should focus on reducing spending, rather than managing the deficit, if we want to reign-in the runaway national debt.

TRANSCRIPT:


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[Lordradost]

To simplify:
Printer goes
Value goes "oh nooOOoo"

[joseluisvazquez]

The "printing" is actually quite a complex and hidden process:
- Too much spending leads to deficit.
- Deficit leads to bonds or treasuries issuance to pay for it.
- Not all bonds or treasuries are bought by savers.
- The Fed or the Central Bank elsewhere, in any case an institution private or public with a public monopoly license, may not buy the debt directly, that would be too obvious.
- Instead the Central Bank/Fed emits reserves (new money) for commercial banks to buy the debt.
- New money enters circulation.
- Monetary inflation leads to price inflation.
- Price inflation does not equal monetary inflation because, it has a lag of several months, new money might concentrate on certain sectors (financial or real state for instance), and technology might compensate part of the inflation with productivity improvements or cost & price reductions.

[Meton]

The bigger myth is that government deficits without printing money are somehow NOT inflationary. It's the government spending money without taxing an equal amount that creates inflation, not the money printing (which the USA doesn't do anyway since the Federal Reserve does not "print money", and treasury bonds are auctioned off in an open market.)

[vannersp]

Counterfeit by any other name has the same effect.

[apertureonline]

Well what about how the financial infrastructure is like inverse to how stocks grow in value? I think that gold is mined in a way that appreciates in value like almost every other resource, but the dollar has been monopolized giving Congress the sole authority. Theoretically they could balance the budget and produce resources, but I mean even with houses they are just receiving the defaulted property.

[donotlikeanonymus]

Technically correct is the best kind of correct....
Let the printer roaaaarr!
You can be a millionair and u can be a millionair and millions for everybody!

Billions even (the billion dollar bills sre much softer then the million dollar bills...
And they're 3 ply !!)

[albertplumer]

The fiat currency if backed as it has in the past, buying gold, recent sales of tonnes of gold lessens the foreign countries if gold is bought by CDN loons we have no dollars, loons only.

[macmadkins]

What about in the instance of corporate bailouts or the furtherance of private property rights through a reduction in transaction costs? We seem to have this attitude especially in economics that when printing money, when it goes to programs that would benefit common people, it is inflationary, but when it benefits small groups of private interests it is also beneficial to the economy. It cannot be two fold. Also, we should reconcile the unrealistic view of how firms set prices...they are not reactionary and seem to more closely follow Means theory of administered prices given the increasing real (not nominal) profit margins of private conglomerates.

[darknase]

What really creates inflation is when things get more expensive:
People earn more, and instead of selling more of the same the shop ask more for the same units of a thing.

Printing money CAN erode, but in a growing economy they more wares/good, which are produced are represented by more money in circulation, as money is just a a value transposer, it allows a rye farmer to get a can of fish which a bartering system wouldn't allow for, as not every fisher men might want rye, the farmer selling rye for money allows the value added/creation of the said farmers work to be transposed in a universal manner.

[robh]

Biden's WH Economist, in an interview, doesn't know how Printing Money works!

[JohnB-nqjs]

What about corporate greed?!?!?! They made my chips smaller!!!