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the advantages and disadvantages ,if a nation prints too much of money. Watch

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    what happens could the nation face, if it prints a lot of money ? the exchange rate will be devalue ? or ?
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    depends how much they print. The money can simply become worthless, depending on the state of the economy of the country as well. Eventually you can see a point where the paper and ink is worth more than the money it makes.
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    Hyperinflation, and possibly death of currency in favour of international one, among other things.

    Examples: Germany, Zimbabwe, Hungary, Greece, Former Yugoslavia and Taiwan are historically the worst affected by hyperinflation.
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    Extreme devaluation of money and the purchasing power of citizens who saved up money over the years.
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    As it causes everyone's real incomes to increase, aggregate demand increases which causes demand-pull inflation, I believe.

    It can be used as a type of monetary policy though, see: http://en.wikipedia.org/wiki/Quantitative_easing
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    just look at post-wall street crash germany
    zimbabwae
    etc..
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    If OPEC were to drastically increase their production of oil, then, all else equal, the price of oil would fall. If Apple were to drastically increase their production of Ipods, then, all else equal, the price of Ipods would fall. If the BoE were to drastically increase the production of sterling currency, then, all else equal, the price of sterling, as measured in terms of other currencies, would fall (devalue).
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    There is no advantage. From what I can see, all it does is devalue the money we have and keep inflation growing fast. The only effect that comes close to it being "good" is that it allows us to remain competitive with regards to exports, as our produce remains cheaper than it would if our currency value was not weakened by the perpetual printing of money.

    I still hate the concept of printing money though
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    (Original post by Dude Where's My Username)
    There is no advantage. From what I can see, all it does is devalue the money we have and keep inflation growing fast. The only effect that comes close to it being "good" is that it allows us to remain competitive with regards to exports, as our produce remains cheaper than it would if our currency value was not weakened by the perpetual printing of money.

    I still hate the concept of printing money though
    Well, it is a (last resort) bet to stimulate spending really. It's also got an effect on the cost of borrowing for businesses. There could be advantages. There also could not be.
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    (Original post by Dude Where's My Username)
    There is no advantage. From what I can see, all it does is devalue the money we have and keep inflation growing fast. The only effect that comes close to it being "good" is that it allows us to remain competitive with regards to exports, as our produce remains cheaper than it would if our currency value was not weakened by the perpetual printing of money.

    I still hate the concept of printing money though
    It is purely equivalent to lowering nominal interest rates, an expansion of the money supply. If you don't like QE then you don't like lowering interest rates. They are one and the same.

    With regards to it's benefits, or costs, well no one really knows. Economic models are fairly pointless as it is, however given this is the first time it's been embarked upon in such scale, we're all still waiting to see what the effects are.

    There are a whole load of models that will suggest this that and the other. Every academic loves reference to whatever model they've taught under exam conditions, but it's more important to critique what they've put in front of you.

    Most models don't allow for context. You can't adjust the dynamics in an IS-LM framework for example, to account for an exceedingly over-leveraged private sector and financial sector that remains on the precipice of collapse. It's important to understand the (exact) mechanics of QE, and try to induce the effects based on how people function - not what is 'rational', or 'logical', but that from empirical evidence.
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    Advantages depend on how much you print. If its relatively small than it can fight deflation, devalue currencs if its a lot than the advantages are you get to design a new currency
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    what happens if a government prints more money but keeps it under wraps? (hypothetically of course...)
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    (Original post by loki276)
    Advantages depend on how much you print. If its relatively small than it can fight deflation, devalue currencs if its a lot than the advantages are you get to design a new currency
    How do you know?

    Define a small amount? In the case of the US, is $2trn a 'small amount'. Is the extra $600bn still a small amount? Is more required? Even empirically speaking, can you extrapolate the benefits of QE against other policies embarked upon in the US, even the UK for example?

    Furthermore what are the goals of QE? Is it to purely influence price indices, or is there a wider agenda at scale?

    I'm going beyond what A-Level teachers or university lecturers want to see or hear - they've been wrong so many times before, why give them credibility this time round.
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    (Original post by Barden)
    what happens if a government prints more money but keeps it under wraps? (hypothetically of course...)
    There's little in the way of difference to what's going on in the US right now: the Fed is monetizing the governments debt.

    You're still increasingly the money supply, however you look at it.
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    (Original post by Klaus)
    what happens could the nation face, if it prints a lot of money ? the exchange rate will be devalue ? or ?
    It depends on the situation.

    People often bring up Wiemar Germany. What you have to remember about that situation is that they were doing for around 10 years prior to the period of hyperinflation. It started during the War so that they could pay for the war.

    It continued for many reasons. The allied sanctions, printing money enabled Germany to keep virtually 100% employment and also by devaluing the currency so much it enabled the Germans to export huge amounts.

    In 2007, they printed vast quantities of money in to prevent a contraction in the money supply, so the banks could continue to lend. That was the premise behind QE

    I believe it is based on Friedman's theory that the Great Depression could have been avoided if the money supply was stabilised.

    I am not an economics student, so if I am wrong, then please correct me!
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    (Original post by NothingOnYou)
    How do you know?

    Define a small amount? In the case of the US, is $2trn a 'small amount'. Is the extra $600bn still a small amount? Is more required? Even empirically speaking, can you extrapolate the benefits of QE against other policies embarked upon in the US, even the UK for example?

    Furthermore what are the goals of QE? Is it to purely influence price indices, or is there a wider agenda at scale?

    I'm going beyond what A-Level teachers or university lecturers want to see or hear - they've been wrong so many times before, why give them credibility this time round.
    Well it does devalue the currency as the money supply increases and QE is a massive risk to do should really only be used as a last resort. It does also lower gilt rates which is again desirable.

    Small amount is relative to the GDP of the country and how much confidence investors have in the currency so whats small for the US will be a huge amount for Afghanistan
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    (Original post by loki276)
    Well it does devalue the currency as the money supply increases and QE is a massive risk to do should really only be used as a last resort. It does also lower gilt rates which is again desirable.

    Small amount is relative to the GDP of the country and how much confidence investors have in the currency so whats small for the US will be a huge amount for Afghanistan
    Does it?

    Which is why the 10y treasury is trading around 3.40%, 60bps away from where it was a month ago?
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    (Original post by NothingOnYou)
    Does it?

    Which is why the 10y treasury is trading around 3.40%, 60bps away from where it was a month ago?
    What sorry?
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    (Original post by loki276)
    What sorry?
    You said the aim is to lower bond yields, i.e. nominal interest rates.

    So why are 10 year interest rates 0.6% higher in the US than a month ago?
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    (Original post by NothingOnYou)
    You said the aim is to lower bond yields, i.e. nominal interest rates.

    So why are 10 year interest rates 0.6% higher in the US than a month ago?
    thats not the aim thats just one of the side effects of the fact that you are buying bonds which is gonna increase their prices and therefore decrease their yield, i bet if you were to look at data right after the QE2 you will see yields going down
 
 
 
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