Why don't countries simply create money?

Question

I'm a noob in economics and I have never studied it but i'm curious why countries that have huge debts don't simply "create" the money and pay off their debts. And actually who "creates" and controls the money in the world?

Answer 1

Well those are big separate questions. First, it may surprise you to know that countries do not WANT to eliminate their debts. Those debts exist in the form of government bonds, and trading and holding government bonds are a very important part of the financial markets. Mutual funds invest in them, widows invest in them, corporations like Apple that have huge multi-billion dollar amounts of cash in their accounts mostly invest this cash in US Treasury Bonds. They are an important part of bank capital and an important part of how central banks help to manage the growth of their country's money supply and help to control inflation or deflation.



So in short, this is not like a person's credit card debt, which is basically seen as all bad (aside from teh cool stuff it bought). It would be totally undesirable for gov't debt all to be eliminated. Some countries would like to have LESS debt, but few countries would be interested in eliminating their bonds altogether. This is one reason neither the USA nor hardly any other country on earth will EVER totally pay off their national debts. A country's national debt does NOT need to be "paid off" -- ever.



Furthermore, though it's theoretically possible that a country might just create new money in an attempt to pay down its national debt, this would have horrible consequences. The rate of money creation must be contained -- if you create too much money too fast, the result is hyperinflation. Money is like anything else, its value is based on supply and demand. If you had an explosion in supply from rapid money-creation, the value of it would fall immensely ... the currency would become close to worthless.



Technically the bonds could be paid off (ie, bought back from bond holders), but from that point on the currency would be worthless, because the world would be awash in that currency, and the government could't buy anything more ... and the economy would be totally wrecked. A government that cannot buy anything is dead. And the hyperinflation could not be controlled, because the way to reduce money in circulation is for the central bank to sell government bonds to banks and to the public, to absorb the cash (ie, exchanging bonds, which cannot be spent, for cash, to get the cash out of the hands of the public.) But the central bank cannot do this when there are no bonds anymore.



Such hyperinflation has created famous historical economic disasters, such as in Post-World War I Germany, and recently in Zimbabwe.

Answer 2

Creating more money will not solve all the economic problems in any single country. It is a very complicated fiscal problem that needs to be addressed.

I am unable to find the correct solutions too because I do not have any tertiary qualifications in economics or business.

However, I have studied an advance business managemnet course a few years and I had found the entire course very difficult to understand, comprehend and follow. The global business world is a whole new ball game.

Each country has a Reserve Bank where they print more money/coins ( coins a complete waste of time) to be injected into their economy.



The International Monetary Fund (IMF) is an international organization that was created on July 22, 1944 at the Bretton Woods Conference and came into existence on December 27, 1945 when 29 countries signed the Articles of Agreement.[1] It originally had 45 members. The IMF's stated goal was to stabilize exchange rates and assist the reconstruction of the world’s international payment system post-World War II. Countries contribute money to a pool through a quota system from which countries with payment imbalances can borrow funds temporarily. Through this activity and others such as surveillance of its members' economies and policies, the IMF works to improve the economies of its member countries.[2] The IMF describes itself as “an organization of 188 countries (as of April 2012), working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty.” The organization's stated objectives are to promote international economic cooperation, international trade, employment, and exchange rate stability, including by making financial resources available to member countries to meet balance of payments needs.[3] Its headquarters are in Washington, D.C.

Answer 3

this has been a popular subject in light of the unintended "debt crisis." the huge debts represent money that has already been "created" and injected into the economy. people have known for years that this was going to happen. everybody always wants to create more money, and that is precisely why you have people peddling crap all over the place. money itself doesnt do anything and only represents labor and production. the reason it commands labor is because people need it to make purchases, pay bills, rent, taxes, etc. in order to "create" more money, the country has to create more goods and services and then "money" will be made even if the supply of money isnt increased. *more money will be made in the sense that each monetary unit comes to represent more goods and services. in other words, each unit becomes more valuable. if governments and central banks, who control the money supply through fiscal and monetary policy respectively, simply increase the money supply without increasing the availability of goods and services, then the money per unit will decrease in value and the result will not be the generation of new "money" even though its supply was increased. in all actuality, workers of the world "create" all the money by producing a product(good or service) in exchange for the paper, and thereby make that paper money

Answer 4

firstly , you must understand how money is "printed"....

our treasury dept does NOT print money, the federal reserve DOES, but only to buy govt treasuries - to allow the govt to have money for whatever spending it wants to do...

govt treasuries = govt debt p.s. this is at interest, so if you borrow 16 trillion to 'pay off the debt' you MUST pay off the 16 trillion + interest

so the system we have in place WILL NOT allow just simple printing of money to pay off debt

the only other way money can come into existence is from consumers taking out loans from the local bank. which is at interest, so the principle amount MUST be repaid PLUS interest

the ONLY way money comes into existence is from debt. period, either govt or consumer debt, it is an inflationary cycle that WILL collapse

there is NO WAY to EVER pay off the debt, because the money DOES NOT EXIST to pay for the interest. only the principle amount borrowed is in existence, if we use every dollar in circulation we would still have the interest outstanding.

nice system we have eh??

Answer 5

They can create more money. But that makes the existing money worth less. That's inflation.