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Why can't we just print money to pay off debt? - YouTube
Channel: WonderWhy
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have you ever wondered why countries
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can't just print more money to pay off
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their debts or to feed the homeless or
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to fix unemployment or any other issue
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for that matter now this may seem like a
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rather silly question but I think it's
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one of those questions that people may
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be too embarrassed to ask but there's no
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shortage of people wondering
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the short answer can be summed up in one
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word inflation inflation is defamed as a
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persistent substantial rise in the
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general level of prices related to an
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increase in the volume of money
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resulting in a loss of value of currency
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but I'll get to that first though we
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need to establish exactly what money is
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now this may seem obvious but something
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that you need to understand is that
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money has absolutely no intrinsic value
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what that means that money in itself has
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no actual value is only considered
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valuable because it can buy things but
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if you were stranded on a desert island
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money would be totally useless money
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only has value because we believe it has
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value this is called the Tinkerbell
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effect something I learned about from
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Vsauce the Tinkerbell effect is used to
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describe something that only exists
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because we believe it exists and this is
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the case with money hypothetically
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speaking if he were suddenly started to
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believe that money had no value
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it wouldn't have value of course it
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wasn't always this way money has been
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around for millennia and when it was
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first used it was in the form of
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commodity money things were treated that
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had actual value and uses like salt
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spaces horses and weapons as well as
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precious metals such as gold and silver
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which technically don't have any
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intrinsic value either but due to the
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rarity they're almost universally
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accepted as currency then we have
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representative money since carrying
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around everything you own can be
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difficult representative money makes
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more sense basically you get your goal
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to a bank and they keep it safe for you
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and then return they give you a piece of
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paper acknowledging that you own that
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gold these pieces of paper can therefore
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be used as money as anyone can go and
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redeem the gold at any time but today
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almost every country in the world uses
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fiat money fiat money requires faith and
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Trust and the government that their
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money will have value if we use a
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relatively young country as an example
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the United States has gone through all
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three monetary systems within 200 years
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in 1790
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when the United States stopped using
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European money a Claims Act of 1972
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brought the inception of the US dollar
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the US dollar was originally informed
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commodity money in the form of gold
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silver and copper coins the coins were
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actually made from real gold silver and
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copper and the value of the metal that
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made the coins were exactly equal to
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their faith value the country then moved
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on to a mixture of commodity and
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representative money with the 1900 gold
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standard act the government issued
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dollar bells which could be exchanged
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for gold ane tame gold standard is a
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type of representative money that many
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countries used at the time this was an
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effective way to accurately calculate
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the exchange rate between countries for
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example if one gram of gold costs one
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pound in Britain and one dollar 50 in
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America that you can easily deduce that
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one pen must equal one dollar 50 gold
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coins were discontinued and the silver
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was removed from other coins effectively
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aimed at commodity money in the United
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States in 1971 Richard Nixon officially
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abandoned the gold standard on the US
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moved on to fiat money so today money
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isn't backed by gold or anything else of
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value for that matter survived to the
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question at hand basic economics tells
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us that an increase in supply it results
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in foreign demand and therefore foreign
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praise so the more money and the economy
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the lower the value of each dollar
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meaning other countries can purchase
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more dollars and Asians for their
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currency the second supply and demand
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graph shows why life leads to a rise in
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prices more money and the economy causes
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a shift in and demand curve for goods
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and services but since this isn't
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matched by an increase in economic
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output prices much rise look at it this
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way if the government printed a million
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dollars and posted it to everyone in the
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country causing everyone to go out and
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buy a sports car but there's only a
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finite number of sports cars in the
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country so the logical thing to do is to
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increase the price of a sports car if we
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use an analogies to demonstrate this
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imagine there's four people on a desert
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island
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they each have ten pieces of fruit all
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fruits are considered equal and value
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now imagine they discover a whole forest
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of apple trees the nominal value of
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apples has increased because there's
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more of them but the actual value of an
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apple has gone down due to an increase
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in supply therefore in their costs ten
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apples for one banana since demand for
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apples is low but high for bananas just
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a clarify in this analogy the people
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represent different
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country's the fruit their respective
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currency and the apple trees the printed
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money but it's not just because of
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economic theory that we know printing
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too much money is a bad idea there's
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several examples throughout recent
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history the most recent example is
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Zimbabwe who in 2008 suffered extremely
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high inflation due to printing money
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this was the result of some awful
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decisions by president with Gabi when
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the economy took a turn for the worst
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when Gabi printed more money to pay
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government expenditure this caused
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inflation to skyrocket and in mid
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November 2008 the Babli's inflation
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peaked at actually wait hold on things
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first I need to provide some context
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inflation eliminated states is around 2%
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economists generally agree that
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inflation levels of 1 to 3% are optimum
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first world countries inflation rates
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today it range from 0 to 5 percent a
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country is said to enter hyperinflation
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when their inflation levels exceed 50
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percent so with that in mind
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Zimbabwe's inflation at its peak reached
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6 point 5 secs tell Ian percent or to
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put it another way that number has 22
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digits it got so bad that prices doubled
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every 24 hours the government tried to
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solve the problem by printing more and
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more money with higher and higher
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denominations they also kept knocking
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zeros off the end by revaluing the
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Zimbabwean dollar three times going
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through four different currencies with
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four different ISO codes for the final
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redenomination they were printing 100
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trillion dollar bills people were
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literally using wheelbarrows full of
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cash to buy a loaf of bread the
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government even made inflation illegal
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at one point and people were actually
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arrested for raising prices in 2009 ISM
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Bob Wian dollar was abandoned and to
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this day they still have no national
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currency their people use currencies
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such as a US dollar the pen sterling and
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the euro before the hyperinflation the
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first in-between dollar was worth about
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125 US dollars if that 100 trillion
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dollar bill was worth that exchange rate
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that single bill would be worth more
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money than there s and the entire world
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twice but as ridiculous as this was this
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is only considered to be the second
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worst inflation in history after Hungary
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in 1940 sex although Zimbabwe's
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inflation peaked in mid November of 2008
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their overall highest monthly inflation
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was seventy nine point six billion
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percent whereas Hungary's highest
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monthly inflation which took place in
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July 1946 with 41 point 9 quadrillion
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percent with prices doubling every 15
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hours suppose i an't perspective a
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country with a healthy inflation rate of
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around 3% precious double every 23 years
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the currency was called the pengal and
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as inflation rose the bell pangos
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introduced short for billion pengal
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which is actually one trillion Pengo on
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the short scale as well as the record
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for the highest monthly inflation hungry
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also holds the record for the highest
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denomination bank nor ever issued the
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100 million bell penguin note
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IE 100 million billion which is 100
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Quintilian Pengo on the short scale when
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nel our Bell penguin notes were printed
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but never issued in 1941 the exchange
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rate was about 5 pengal to 1 US dollar
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in 1946 when the currency was
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discontinued things had gotten so out of
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hand that if you took every single
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banknote in the entire country they
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would have a total value of one tenth of
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a u.s. pay me
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hungry then switched to the forint where
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one formed equals 400 OCH telegin Pengo
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that number has 29 zeros so that's why
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governments can just print money to pay
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off their debt it does not end well it's
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also important to understand exactly
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what national dares national debt is
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much more complicated than personal debt
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it isn't simply a case of you owe people
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money take the country with a highest
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national debt the United States that
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currently has around 17 trillion dollars
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a day and you're probably aware the
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country that holds most US debt as China
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although that is true it's somewhat
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misleading of the total debt China only
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has about 8 percent most of the day is
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actually owned by the United States
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government itself by organizations such
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as Social Security or the Federal
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Reserve on top of this a further 30
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percent is owned by US citizens and even
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though 8 percent of 17 trillion is still
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a lot China can't just knock on the door
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of the White House and demand 1.2
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trillion dollars it doesn't work like
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that
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basically the US Department of the
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Treasury issued Treasury bonds you can
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buy these bonds and the government or
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pay you interest on that bond every year
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then once the bonds have matured they'll
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buy the Treasury bond back from you now
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if a country gets into financial trouble
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it may have to default on its debt which
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basically means you won't get your money
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back but the u.s. is generally
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considered an extremely risk-free
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investment because the US dollar is the
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most widely used and the most
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trustworthy currency in the world it's
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even written into the Constitution that
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United States cannot default on its debt
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I'll leave you with this thing of
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thought and what I think is possibly the
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best way to sum up why governments can't
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just print off unlimited amounts of
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money if money grew on trees it would be
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as valuable as leaves
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thanks for watching
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