There is nothing to prevent the government from creating as much money as it wants.

[Dovahkiin]

Simple, and true.

 

[Steven_R]

And? That's just part and parcel of a fiat currency system.

But if the government just creates more money it leads to more inflation and less value for the money already in existence. When it becomes as plentiful as the mark in Weimar Germany or the pound on today's Zimbabwe, it is effectively worthless. There comes a point of diminishing returns when creating cash with no underlying basis besides "it's worth something because we say so."

 

[Dovahkiin]

And? That's just part and parcel of a fiat currency system.

But if the government just creates more money it leads to more inflation and less value for the money already in existence. When it becomes as plentiful as the mark in Weimar Germany or the pound on today's Zimbabwe, it is effectively worthless. There comes a point of diminishing returns when creating cash with no underlying basis besides "it's worth something because we say so."

- Currently, neoclassical nonsense dominates the discussion, and part of that is the obsession with "running out of money." Even Obama peddles that nonsense.
What makes you think increasing the money supply leads to significant inflation? The 2 examples people always turn to actually help prove my point. Let's look at the weimar. Germany had just come out of world war 1 with FOREIGN DEBTS (Not applicable to the united states,) and a lack of real resources. Hyperinflation only ever occurs with a massive resource shortage, when aggregate demand massively overcomes aggregate supply. Let's look at zimbabwe. Mugabe confiscated private farms and gave them to people who had no idea how to use them, decimating the food supply. All output fell, due to the horrible mismanagement of the economy.

 

[Bob Blaylock]

There is nothing to prevent the government from creating as much money as it wants.

Government can create money, but it cannot create wealth. Money and wealth are not the same thing. Money is merely a medium by which wealth is measured and exchanged. If the supply of money is increased, while the amount of wealth remains static, then all that changes is that the value of each unit of money is diminished. If government were to double the number of dollars in circulation, the effect would be that the value of each dollar would be half of what it was before; and it would take twice as many dollars to buy the same thing.

 

[Dovahkiin]

There is nothing to prevent the government from creating as much money as it wants.

Government can create money, but it cannot create wealth. Money and wealth are not the same thing. Money is merely a medium by which wealth is measured and exchanged. If the supply of money is increased, while the amount of wealth remains static, then all that changes is that the value of each unit of money is diminished. If government were to double the number of dollars in circulation, the effect would be that the value of each dollar would be half of what it was before; and it would take twice as many dollars to buy the same thing.

Of course, just like a corporation can't create wealth. However, money is a tool to drive wealth creation. (I assume you're referring to real assets, aka, a car.) Bob, we have plenty of unused real resources and the means to control inflation, don't be so concerned.

 

[CultureCitizen]

And? That's just part and parcel of a fiat currency system.

But if the government just creates more money it leads to more inflation and less value for the money already in existence. When it becomes as plentiful as the mark in Weimar Germany or the pound on today's Zimbabwe, it is effectively worthless. There comes a point of diminishing returns when creating cash with no underlying basis besides "it's worth something because we say so."

That is not completely correct, I fear. Money creates inflation IF no aditional goods are created within the local economy.
If you spend the money overseas what will happen is you'll weaken the dollar ( and that would need a rather large amount of money printing).
But, if you spend it in local goods , well, sure enough that will increase the production.
The inflation problem comes only when the amount of goods and services stays flat in spite of the money printing.
And that will happen if people stop working ( and decrease productivity ) or if there is not enough productive capacity to cope with the increase in the demand. Then yes, you will get inflation , of course.

 

[HenryBHough]

Hey, it worked in Argentina.

And in Venezuela.

And, for a short while, in Germany.

 

[Manonthestreet]

Except when no one wants it anymore ..........oooops

 

[CultureCitizen]

Hey, it worked in Argentina.

And in Venezuela.

And, for a short while, in Germany.

You seem to forget the fact that bnks create money out of thin air every time they extend a loan.

"Where does money come from? In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood. The principal way in which they are created is through commercial banks making loans: whenever a bank makes a loan, it creates a deposit in the borrower’s bank account, thereby creating new money. This description of how money is created differs from the story found in some economics textbooks.”(Bank of England)"

...

"When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage. At that moment, new money is created. For this reason, some economists have referred to bank deposits as ‘fountain pen money’, created at the stroke of bankers’ pens when they approve loans.(1)” [our addition in brackets] (Bank of England, Money Creation in the Modern Economy)

The Proof That Banks Create Money - Positive Money"

 

[Mad Scientist]

My only addition to this thread full of Win is that the US Gov't does not create money. The Privately Owned Non-Federal Reserve does.

Has been since 1913.

 

[Agit8r]

"With this paper, without taxes the first three years, they fought and baffled one of the most powerful nations in Europe. They hoped, notwithstanding its quantity, to have kept up the value of their paper. In this they were mistaken. It depreciated gradually. But this depreciation though in some circumstances inconvenient, has had the general good and great effect of operating as a tax, and perhaps the most equal of all taxes, since it depreciated in the hands of the holders of money, and thereby taxed them in proportion to the sums they held, and the time they held it, which generally is in proportion to men’s wealth. Thus, after having done it's business, the paper is reduced to the sixtieth part of its original value"
-- Benjamin Franklin; from letter to Thomas Ruston (Oct. 9, 1780)