How are we in recession if we can make our own money?
Does that make any sense to you? The U.S. is a Triillion dollars in debt yet we can make as much money as we want? What do you think about that? because if I was broke right now and knew I had the machine to print out as much money as I wanted to get me out of debt, I would use it quickly then problem solved. So why are we "supposedly" in a Recession?
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Most Helpful Opinion
Creating currency devalues the currency that is in circulation right now. If you would like to read up on it, look up inflation and hyperinflation.
The basic principle goes like this: If there is something of limited supply, then people know that not everyone can have it. So they strive to attain it before it runs out or is severely limited. On the other hand, if there is plenty of something to go around then people aren't as worried about getting it because they know it's not hard to come by. Same thing applies to currency. If there is a lot of it, then people don't feel the urgency to get it like they did before.
Also, when there is more currency in circulation, businesses know this and can get away with charging more for their products in order to get a bigger slice of the pie. So a person can end up with more money, but the price of goods and services also rises so everything stays relative anyway. If you earn $1 and bread costs $.50, that is the very same thing as you earning $100 and bread costing $50.
As for our recession, receding is the root word. It means that our national production, purchasing, credit, etc. capacities are drawing back while we have built ourselves to sustain up to a certain amount. So now we basically have a lifestyle that is built above our means since our economic system is drawing back, unable to cover what it did before. We are borrowing against other nations to sustain where we are now, but we are completely out of money.
That is the bare and basic way of explaining it, but it runs much deeper than this.
What Guys Said 7
well, look at diamonds. they are actually the most plentiful gemston on earth, but because there aren't many on the market, they are one of the most expensive- when they could be as worthless as the gravel in your neighbors driveway.
Same thing, if we print more money, and more people have it, stores will see this and start charging more money for goods and services. if everyone has $5, the price of the $1 candy bar will be raised to a $3 (this is what we hear on the news all the time as "inflation" ) What this all means is I can by less materials with the same amount of money. I used to buy 6 candy bars for $6, but now I can only buy 2. this is buying power, and it decreases. it also means that when I save up $25,000 for my trip to italy I get my money exchanged, I have roughly enough euros(money used in italy) for lunch.
One last example. lets say there is no food in the land. the food in your pantry becomes PRICELESS because you know you only have a little bit. but lets say you live in a military storehouse of food. you don't even care if there's a famine outside, you have enough food to feed an aarmy for 5 years. you don't value it like you would if there was only a little bit
So yes we are in debt, but to other countries. if we just print more money they won't value it the same and for every dollar, they demand $3, or $4, or $5, and we actually sink even deeper into debt.
There are some very good explanations in here already, but I figured I would leave you with a real world example.
Zimbabwe was in a situation even more dire than that of the US, and part of their response was to print more money to solve problems the way you describe. They suffered inflation of %66000, meaning that the prices of everything went up to 660 times the original value. The paper money required to buy a loaf of bread weighed more than the loaf of bread itself. Don't believe me? Here is a picture: link . That kid is not rich, despite the stacks of two hundred thousand dollar bills, that is literally what he is using to buy bread. It got so bad that in 2008 they had to drop 10 zeros from their currency in an effort to stop it, that meant that 10 Billion Zimbabwe Dollars became one dollar. This attempt completely failed, and the Zimbabwe Dollar was officially abandoned as a currency in 2009.
I'm just giving you an example of the system you described using to get out of the recession, if you want the explanation of why it works that way, read some of the previous posts.
There are some good answers here already but I just want to point out that what people think is just printing money and devaluing the dollar is actually a tax on you, me, and everybody out there with a fixed income or a savings account.
We actually don't really make our own money in the United States. What we do is promise we'll pay people back something that has value. Other countries, private investors, and the Federal Reserve Bank buy U.S. bonds from the United States Treasury. These bonds that other people buy from us are promises that we'll pay back their money and we'll pay interest if they wait a certain amount of time to ask for their money back.
The problem is that when people don't feel like lending us more money the Federal Reserve Bank buys the bonds and buys as much as we insist they take which creates the illusion that these bonds still have a demand. Eventually when we pay back the bonds by selling more bonds it results in more money being out there and the money loses value since there is more of it as others here explained already.
If you have money in a savings account and/or you're still getting paid the same at your job and money keeps losing value then you're actually working just as hard as before but getting less stuff in return. This is really a hidden tax! The more the government spends the harder you have to work for less stuff. People that want the government to feed the poor don't realize spending the money is just creating more poor people.
You probably understand this already because of what everyone else said, but another way to think of it is that if you had a machine to print as much money as you wanted, but the people who you owed money to knew that you had the machine, they wouldn't accept your money because they would know that you just printed it up yourself and it wasn't really worth anything.
What Girls Said 3
You can't print more money to pay off your debt because every time you print money the value of the dollar goes down. Think of money as a cherry pie. If the price of a pie is $12 & you cut the pie in half, each half is now worth $6. Now cut the pie again into four equal pieces. Each slice is not only equal to $3. If you cut the pie so there is now 8 pieces, the value of each slice is $1.50. So as you can see, creating more & more pieces doesn't make more money, but just makes each individual piece have less value. That is the same way with money, the more US creates, the less the dollar is worth. So if 2 dollar was worth 2 Euro before, by making more dollars, 2 dollar would only be worth 1 Euro. So now in order to trade with Europe, we would have to pay twice the amount of dollars we did before. If this didn't make sense to you, let me know, and I'll try to explain it better. I love accounting & economics, so I don't mind supplying information.