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Why Can't the Government Create Money?

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Original post by Calum.McManus

The making money and pumping it into the public sector is the same as pumping money into the private sector because that money has to go into someone's pocket. this will always cause inflation no matter which way you looks at it. Sure give local councils money to build a new Youth Center for the community, but, a private company is going to build that and that money is going straight to them and then suddenly you have all this extra money going into circulation.


What part of creating money in line with rates of inflation do you not understand?
What is the qualitative difference between money being created and loaned to the government by a private banking cartel, and the government creating its own money (via an independent body at the central bank) free of debt? How is the latter unworkable? You haven't explained why it isn't feasible.
The state can and does issue money, for instance creating electronic money with which it buys its own government bonds.

This is a tax on private citizens who hold currency and pound-denominated fixed income securities, not "free" money.

It also causes inflation which would, after some point, exceed the BoE target.
Original post by Polymath0
What part of creating money in line with rates of inflation do you not understand?
What is the qualitative difference between money being created and loaned to the government by a private banking cartel, and the government creating its own money (via an independent body at the central bank) free of debt? How is the latter unworkable? You haven't explained why it isn't feasible.


I think you are misunderstanding how the government controls inflation.

They do this is a few different ways but one of these is interest rates. the bank of england move there interest rates up and down to maximise expenditure in the economy. to break it down, when the interest rates are high people avoid taking out loans slowing down growth of companies, a good example is the car sales industry, people might not be able to afford a loan to get a new car when interest rates are high, but, when these companies start making less and less money they begin to decrease interest rates increasing the amount of money being spent and increases growth of the businesses as well as employment rates.

So, by "creating money in line with rates of inflation" you would infact be stopping inflation and keeping the value of money the same at all times, therefore the government would begin to lose control of the economy and could inturn cause an economic crash depending on how businesses deal with it. Not to mention it would cause the aggressive and wealthy businesses to dominate markets which could cause people to lose jobs in smaller companies.

Borrowing money keeps money moving around the country, creating money adds it into the economy, but creating money inline with inflation would infact be stopping inflation completely, no change in inflation will cause the wealthy to rule as they can start to control prices in the market causing a loss of jobs increasing the unemployment as less jobs are available.

This is how I see things working at least.
Reply 123
Avatar for Quady
Quady
20
Original post by H.N.I.C
Id like you to go and try get the gold you supposedly think your owed.
The vaults are empty Gordon sold Gold on the low.
Its not backed by anything


The BoE owns no gold? :s-smilie:
Original post by Quady
The BoE owns no gold? :s-smilie:


well i slightly exaggerated it a bit but he did sell of vast amounts of our gold at a low price
Reply 125
Avatar for RD208
RD208
11
Wat

A government cannot create money because it is not a bank.

If every government was capable of creating money then what would be the value of money?

Government's can direct the printing of more money (quantitative easing), but that money cannot simply be injected into the economy for "free". The government essentially buys that money, which is essentially debt.

Sorry, but I don't think you're really on to anything here.
Reply 126
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Quady
20
Original post by H.N.I.C
well i slightly exaggerated it a bit but he did sell of vast amounts of our gold at a low price


What happened to the money?
Original post by RD208

Government's can direct the printing of more money (quantitative easing), but that money cannot simply be injected into the economy for "free".


So you're saying that the financial sector can be given money by the state debt-free (which is essentially the nature of QE), but not the real economy?
How does that make any sense?


The government essentially buys that money, which is essentially debt.


But why? It doesn't need to be this way. The government can create money via the Central Bank and issue it into the economy to finance public services without debt.
Original post by Calum.McManus
I think you are misunderstanding how the government controls inflation.

They do this is a few different ways but one of these is interest rates. the bank of england move there interest rates up and down to maximise expenditure in the economy. to break it down, when the interest rates are high people avoid taking out loans slowing down growth of companies, a good example is the car sales industry, people might not be able to afford a loan to get a new car when interest rates are high, but, when these companies start making less and less money they begin to decrease interest rates increasing the amount of money being spent and increases growth of the businesses as well as employment rates.


First of all, do you not find it even remotely odd that one interest rate mechanism is being used to regulate inflation in the entire economy? Going by your logic, lowering the interest rate to stimulate the auto industry would have a negative inflationary effect in other areas of the economy, such as housing.

In reality, the interest rate isn't effective, since the private banks can create as much money as they want, which is why there is asset inflation in the housing market.
You can read about this in the book, Modernising Money by Positive Money.
If the interest rate mechanism works as well as you claim, why did the UK government introduce help to buy?


So, by "creating money in line with rates of inflation" you would infact be stopping inflation and keeping the value of money the same at all times, therefore the government would begin to lose control of the economy and could inturn cause an economic crash depending on how businesses deal with it. Not to mention it would cause the aggressive and wealthy businesses to dominate markets which could cause people to lose jobs in smaller companies.


Creating money in line with inflation does not lead to an "economic crash." It means that inflation targets are being met to ensure that inflation is stable. It would be linked to GDP.

You simply haven't a clue what you're talking about.


This is how I see things working at least.


That's unfortunate, because most of what you know about the monetary system is factually inaccurate.
Original post by Observatory
The state can and does issue money, for instance creating electronic money with which it buys its own government bonds.


Evidence?
The government issues bonds. Why would it buy its own bonds? And if it can create and issue money, why would it buy its own bonds in the first place?
Think.
Reply 130
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RD208
11
Original post by Polymath0

But why? It doesn't need to be this way. The government can create money via the Central Bank and issue it into the economy to finance public services without debt.


It can. But it would have disastrous consequences, first and foremost inflation. If you're implying this then why don't we all just buy a printer and print our own money?
Original post by Quady
The BoE owns no gold? :s-smilie:


The BoE and Fed both own gold but if you were to align that gold with the amount of money in circulation, including all the electronic money the ratio of money to gold is mind boggling.




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Original post by RD208
Wat

A government cannot create money because it is not a bank.

If every government was capable of creating money then what would be the value of money?

Government's can direct the printing of more money (quantitative easing), but that money cannot simply be injected into the economy for "free". The government essentially buys that money, which is essentially debt.

Sorry, but I don't think you're really on to anything here.


Incorrect. The state can make its own state bank. It is not forced to use the type of entity we know as a central bank if the laws allow. In this scenario the taxpayer does not have to pay anyone interest on money created. Reserve banks and consumer banks benefit from adding to the money supply.


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(edited 9 years ago)
Original post by RD208
It can. But it would have disastrous consequences, first and foremost inflation. If you're implying this then why don't we all just buy a printer and print our own money?


So tell me why is central bank money creation or downstream banks money creation (10:1 ratio on average
on most loan books) less disastrous than the state creating money? That is not going to give us all a money printer.


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Reply 134
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Quady
20
Original post by MKultra101
So tell me why is central bank money creation or downstream banks money creation (10:1 ratio on average
on most loan books) less disastrous than the state creating money? That is not going to give us all a money printer.


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Depends if the state were to destroy money too, like downstream banks do.
Reply 135
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Quady
20
Original post by MKultra101
The BoE and Fed both own gold but if you were to align that gold with the amount of money in circulation, including all the electronic money the ratio of money to gold is mind boggling.




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OK, so the vaults aren't empty?
Reply 136
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RD208
11
Original post by MKultra101
So tell me why is central bank money creation or downstream banks money creation (10:1 ratio on average
on most loan books) less disastrous than the state creating money? That is not going to give us all a money printer.


Posted from TSR Mobile



Because if the Government is allowed to create its own money then what happens to its value?
Original post by RD208
It can. But it would have disastrous consequences, first and foremost inflation.


Why is this being mindlessly repeated? Do you not understand that the Monetary Policy Committee (MPC) at the Central Bank already has the macroprudential tools to keep inflation at pace with the economy, even within some margin of error?


If you're implying this then why don't we all just buy a printer and print our own money?


We don't have the relevant macroprudential data available, nor the checks and balances, to ensure that we do not create money in a reckless fashion.
Original post by Polymath0
Evidence?
The government issues bonds. Why would it buy its own bonds? And if it can create and issue money, why would it buy its own bonds in the first place?
Think.

If the government buys its own bonds with money it has created then the net effect is to transfer the value of that money from private owners of money (and derivatives) to the government. Otherwise, it would have to repay the money to the private bond holders. Although that's not usually the main reason they do it, there's nothing weird going on here. The google search term you are looking for is open market operations.

Why is this being mindlessly repeated? Do you not understand that the Monetary Policy Committee (MPC) at the Central Bank already has the macroprudential tools to keep inflation at pace with the economy, even within some margin of error?

The MPC can keep inflation in check by controlling the rate of growth of the money supply. You are advocating indefinite monetary expansion. What you are saying does not contradict the criticisms to which you are trying to respond: the BoE can keep inflation in check or it can indefinitely loan newly created money to the state. It cannot do both.
(edited 9 years ago)
Original post by RD208
Because if the Government is allowed to create its own money then what happens to its value?


Why is the value greater or less depending on whether the government creates it or NatWest creates it?

Money is just some form of medium exchange that everyone agrees to use and trust. People could use gold, and no one creates it, it was just there in nature.


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