Can someone explain the process of printing money and where this will be taken from? Who pays for this?
Money printing only holds value if there is something to back it up. in prior years it was backed by gold but as world population increased and so did the economy while the supply of gold remained constant many countries left it to fiat currency. fiat currency is backed by the guarantee of the government that that money has value.
so how can US print shit ton of money and not have the dollar devalue?
the way it works is like this
lets say US govt needs money $1 billion--> it goes to federal reserve and federal reserve will $1 billion print treasuries . treasuries are just an IOU note. The treasuries are then sold in the open market with interest. basically what happens is US govt needs money and federal reserve goes to international market saying US govt needs $1 billion and it will give 10% interest to whoever lends that money. so other ocuntries, businesses, insurance companies will buy those IOU notes and essentially give that $1 billion loan to the govt. so now US govt gets the go ahead to print a $1 billion in currency that it can use. then at the end of every year when US govt collects taxes it pays interest ton those who lent and pay some of the entire treasuries.
now some pointers here to that confuses people.
why cant then US print then just print more money and pay off that loan?
the thing is everything needs to be backed by something of value. the tax revenue US govt collects has value because that money came from labors people spent, businesses that did trade, farmers that sold food etc.
this value proposition is like if i take a piece of paper and write this is worth $100. every knows its worthless but if for example i am a shoe maker and i create a piece of paper saying whoever has this piece of paper is entitled to 1 pair of show. now suddenly that piece of paper is worth whatever the value of the shoe is
Why do other countries and business lend money to US?
because US is the strongest economy out there and investment is as good as cash plus youre getting interest on it. its like lending money to a billionaire who has enough income that you know hes gona pay you and give some interest on that
at what point printing enough dollars will cause loss in value of the dollar?
it depends on the tax revenue of the Govt. people are only willing to lend US money as long as US has the ability to pay. for example if US tax revenue was $100 and its expenditure was $80 you know US can afford to pay $20 of extra interest and as long as the federal reserve print money to that amount dollar will be stable. nobody will buy treasuries if lets say all the interest on the treasuries every year was $35 . people will know that US cant afford to pay them that much interest and no one will buy it and hence will loose value
- thats why when trump said that he will default on the govt debt or negotiate with the credit for a lower amount the treasuries fell
Till when can US keep lending?
forever, as long as the economy of the US keeps increasing --> US govt tax revenue keeps increasing US will always be able to get money. think about the last $100 example i said . now imagine next year US tax rev. increased to $120 and expenditure is $80. now i have the additional capacity to pay more interest and hence get more debt
