# Tag Info

44

This wouldn't work - for the money to have any value abroad, it has to find its way back to the source country. Consider an example; the President of Ruritania wants a Swiss watch. He prints a thousand Ruritanian dingbats and sends them to his ambassador in Bern with the instruction to buy him a watch. However, the Swiss watch-maker doesn't want to be paid ...

39

In order for one country to spend in another, it needs to exchange its currency for the currency of the other nation. This is done through something called the foreign exchange market. Like most markets however, the laws of supply and demand apply here too. If a country suddenly starts printing a lot of money, the actual value of its money in the foreign ...

39

Very obscure historical example: From 1287 to 1295, the Danish nobleman Stig Andersen Hvide was leading a band of outlaws from the island of Hjelm supported by the king of Norway against the king of Denmark. Stig managed to kidnap expert coin makers and bring them to Hjelm, where they produced counterfeit Danish coins. This allowed Stig and his supporters to ...

36

It would not work. Historically speaking, governments that try to fund their operations primarily via the printing press experience not just inflation but hyper-inflation. Why? Well, one explanation is that without taxes nobody has any reason to want the government's currency. You can try to force people to use it, but that just encourages black marketeering....

33

Most of the US real earnings data which go only as far as mid 60s. According to the statista data presented in this article by world economic forum the evolution of real hourly earnings in the US for production and non-supervisory workers looked like this: If we extrapolate to 50s then the real earnings are now higher overall. However, this being said the ...

31

The optimal level of inflation is very debated with unclear answers. There are many reasons, and a great answer would be very long. It should also distinguish between expected inflation and surprises. I'm not going to do any of this, but giving you three reasons for a desirable positive level of inflation. This list is of course incomplete, also there are ...

30

The CPI stands for a Consumer Price Index. As in the price of things that are consumed (at a particular moment in time). Real estate prices are not the price of something consumed because they contain the value of current housing consumption but also the capitalized value of future housing consumption. As such, including house prices would make the CPI a ...

29

https://en.wikipedia.org/wiki/Operation_Bernhard (an exercise by Nazi Germany to forge British bank notes. The initial plan was to drop the notes over Britain to bring about a collapse of the British economy during the Second World War. )

23

Average standard of living is massively higher today compared to the 1950s, primarly due to technological progress. Even a cheap low end car today is much better than the big cars of the 1950s, it is orders of magnitude safer, much more comfortable and has a whole bunch of new features that didn't exist back then. Houses as such haven't changed that much, ...

22

Inflation is measured against a basket of goods. It's a symptom of what's going on in markets. Some products go up in price over time. Some go down in time. Some stay the same price, but change their specification. So it's looking down the wrong end of the microscope, to ask why inflation hasn't affected car prices. Car prices are part of inflation. Changes ...

18

tl;dr this would not work in either closed or open economy unless your proposal would include very large cuts to current social and welfare spending as only arguably small part of those could be funded that way. There are several reason for including: there is a limit to the amount of real government spending that can be financed by monetary expansion. For ...

17

The primary source of the recent ruble collapse has almost certainly been the falling international oil price, aggravated by some other features of Russian politics and its economy. Petroleum products account for over half of Russia's export revenue, and most remaining export revenue comes from other commodities, whose output it cannot easily adjust. When ...

15

FooBar is quite right that unless you expect GDP growth to stop, fixed nominal supply currencies will lead to deflation. A moderate degree of currency inflation serves a number of useful functions in the economy. The most obvious are: It induces people to spend their money before it loses its value. In a deflationary environment there is an incentive to ...

14

You also didn't look at car prices in general but rather just the Toyota Camry. For example a 2001 BMW M3 was ~\$46,000 while a 2018 BMW M3 is ~\$66,000. Most cars have increased in price over the last 20 years, but some manufacturers will always have a cheap car in their lineup .

14

The book “The Two Income Trap” (2003) by Elizabeth Warren (recent Democratic presidential candidate) and Amelia Warren Tyagi discussed this. They looked at spending breakdowns in the 1970s and when they were writing. One thing to keep in mind is that the mix of spending has changed, as well as the characteristics of products. E.g., modern cars appear to be ...

14

Will printing more money during COVID cause hyperinflation? Likely not for several reasons. First, the article from economicshelp.org you mention is oversimplifying the economics, which is understandable as it is article written for non-economists, but to understand this issue we need to go little bit further. Inflation, is simply just positive change in ...

13

Money is produced at zero social cost but held at a positive private cost (because to hold money you must forgo holding other assets). Therefore there is a positive externality from holding money, which means that the usual arguments for subsidizing it apply. This makes the optimal rate of inflation negative (because inflation is a tax on holding money). ...

13

David Petruccelli writes in "Banknotes from the Underground: Counterfeiting and the International Order in Interwar Europe" In December 1925, a group of Hungarian nationalists were caught trying to put into circulation a large quantity of counterfeit francs in a bid to weaken the French economy and fund irredentist action in Central Europe. Edit: ...

12

"Worth less" than before - yes, that's exactly what inflation does. "Worthless" - not quite. No percentage-based reduction in value can make something worth 0, but there are extreme examples from history of times inflation has spiralled so far out of control ("hyperinflation"), money became worth less than the paper it was printed on, and life savings ...

11

It is a fallacy to conclude that a steady number of coins will give you no change on the monetary value (inflation/deflation). The classical quantity theory of money can be used as a first-order approximation here: $MV = PY$ where $M$ is money, $V$ is the velocity of money, $P$ is the price level and $Y$ is the quantity of real goods. The equation says ...

11

Your coins do not have 0 inflation in the long run First, we need to set straight that you have a critical error in your supposition: The rate of creation of money is not the only determinant of the inflation rate, see here. Even if we ignore these equilibrium effects, is any of these coins superior in its rate of money creation? Suppose hereinafter that ...

11

Most manufactured products are sold domestically, but even so a strong dollar will (usually) cause a decline in sales and profitability of US manufacturers. The reason for this is that a strong dollar makes foreign products relatively cheaper, not just manufactured products, but all products. Therefore it becomes cheaper for person to buy, say a foreign-made ...

11

Why doesn't the government create money, spend it for free without interest, and recollect it with taxes, you ask. Well, it does. That's exactly what public investment & spending, and the taxation system, do. The government creates money, puts it out into the economy, and collects it back through taxation and other payments. If it does that while ...

10

Its important to keep in mind that the exchange rate is a "price for currency" and just like any other price it is determined by supply and demand. The main question now is what determines supply and demand for currency? There are two main models that tell us how exchange rates behave based on the two main forces driving demand (and supply) for ...

10

It all depends on what you mean by inflation and by money supply. Technical questions and answers need specific definitions, otherwise everyone ends up talking at cross-purposes. Is it possible to have an increase in general price levels without any changes to the amount of money in circulation? Yes: if the velocity of circulation of money increases, and ...

9

The answer by nominally rigid very correctly hints at oil prices as one of the major causes. I'd add more details and numbers to this point. A slightly longer version is available here. 1. Russian corporations borrowed in foreign currency when external debt was cheaper than domestic debt Paul Krugman pointed at the PPP vs exchange rate changes. I've made a ...

9

For Quantitative Easing to happen, a central bank needs to expand its balance sheet by, more or less, "printing money" from scratch. Quantitative Easing is a difficult policy in that you want to encourage inflation to force investment, but at the same time you need to control that inflation. For this reason QE should be used only when central banks believe ...

9

It's true that in response to an oil shock, the Taylor rule could recommend increasing the interest rate to reduce inflation. In practice it would mean that as interest increases, consumption falls. This could be from less credit financed spending, or because the opportunity cost of holding money has increased, therefore people invest more in illiquid assets ...

Only top voted, non community-wiki answers of a minimum length are eligible