Someone explain this to me please, ok so the USA is on a deficit, the government needs money for whatever?
reason, why not just go to the . U.S. Department of the Treasury . and print more money
How does the dollar get devalue ? I don't understand that.
- BillLv 79 years agoFavorite Answer
In some sense that is what they do, although they rarely make more physical currency. They usually do it by increasing the cash held in the Fed by fiat which is then lent to Banks at a near zero interest rate. Increasing the money supply this way does cause inflation because for every dollar in circulation (whether real or electronic) each other dollar is theoretically slightly less valuable. It takes a while for the inflation to catch up in the domestic market, but it has a pretty immediate effect on currency vs. currency valuation which means that our imports cost more and our exports bring in less. Effectively, creating money is kind of like a sneaky tax on everyone.
But you can't just eliminate the U.S. debt even if you printed 13 trillion dollars. The U.S. debt is paid in a pre-defined way by interest, mostly on bonds. People and countries that hold U.S. debt can't walk into the treasury and demand their money. They have to wait for scheduled interest payments. Similarly, the U.S. can't just say, here's your money, no more interest for you. (Well it could, but then no one would ever buy U.S. bonds again.) So you can stop adding to the debt, and you can pay it down somewhat by offering early cash-ins, but you can't just whisk it away.
- markLv 79 years ago
Because every time they print, it devalues the dollar. If they were (for example) to print 13 trillion and pay the whole debt off, the dollar would be nearly valueless. Even modest influxes of currency (like QE1, QE2) are of big concern for that very reason
The dollar is devalued by having more of them. Just like if we found 100 trillion barrels of oil, the cost of oil would go down (devalue), the same thing happens to the dollar. Since imports and exports are a huge part of our economy, it means that we pay more for imports and get less for exports. So, that Ipad could cost you 2000 instead of 500.
- Texas MikeLv 79 years ago
Other answers here are better than what I could say but I can say this:
I went to England a few years ago and exchanged dollars for English pounds. I rented a car .. I could fill up the car in the US for $70 easily. but it cost me $150USD over there with the exchange rate. $100 hotel rooms here were $200 there. Similarly when I went to Mexico I bought Kahlua [Liqueur]. 1 Liter in the USA is $28. In Mexico it was $4.00 even in a grocery store.
So dollar valuation makes a huge difference. You cannot just print money.
Other examples are controlling the flow of Gold and Diamonds in the world .. if uncontrolled their value would go down.
Hope this helps.
- BilboLv 79 years ago
You wouldn't be happy to find that the piles of dollars under your bed (or in your bank) are suddenly worth half what they were. That's what happens. USA only has so much gold against which they issue paper money - the more paper they issue, the less any single is worth.
As it it there is far more paper than gold available - they rely on the fact that we aren't all going to turn up at the Federal bank demanding they honor their promisssary note at the same time. (In fact sale of bullion is controlled partly to avoid this). There is some latitude in printing currency - a more effective way would be to sop spending money on pointless (and unwinnable) wars and pump that money back into the economy.