The Printing of Money for Paying Debt

Question

I know that printing money causes inflation, but what if we print it to pay back our debts?

For example, we have N dollars of debt to China. We can just print the N dollars and give it to China.

This way, we would not have more money in our country which would cause inflation, and we would not be giving from our own money, which would cause deflation. Also, China gets back the money U.S. owed it.

My guess is that it would cause some kind of weakening of the Chinese money against the USD, but could anyone verify that?

Answer 1

Printing money causes inflation because someone (or some institution) will get the money and will spend it somehow. This increases demand for goods, but the number of goods, the supply was not affected by printing money. Hence demand at the old price level is larger than supply at the old price level. Prices will rise until a new equilibrium is reached.

The problem is that you seem to think that the N dollars you give to China would be gone. But it wouldn't be, the people who got it in China can now spend it in the US. They can import things, come as tourists, make investment purchases etc. This increases demand and results in inflation again.

Answer 2

Printing more money for the sake of paying off debt is not a good option to consider. There is no benefit to the economy in china as no transaction is being made. the main impact will be on inflation as it would rise.

The supply and demand of money equation would be disrupted, so this would ultimately lead to supply greater than demand and in the end the prices would also rise.