Our interns here in DC visited the Bureau of Printing and Engraving this week.  In case you didn’t know, this is where most of the paper money in the US is printed.  I have to say I haven’t been so near so much cash in my life (something like a few hundred million in the building, and we even saw, yes, a $100,000 bill). But that is not the point here.  As we ended the tour one visitor (thankfully not one of our interns) asked the following: “The US has a lot of debt.  So why don’t we just print more money and pay all of it off?”  Now this young man was not stupid.  He appeared and sounded quite normal.  But he did exhibit an alarming economic ignorance.  I hope none of our dear readers possess this particular ignorance, but just to ne clear, here is the problem, which, I am thankful to say, our guide explained quite nicely. 

If you print more paper money, put it into legal circulation and use it to pay our entire national debt (about 17 trillion dollars now!!), what happens?  Well, all that new money “gets out there” in the economy–to debtholders, creditors–and now they have all this new money to do as they will.  I suppose they could just hold onto it.  But they won’t.  It will inevitably circulate into the general (worldwide) economy.  It will be spent in other words, in some way or other.  If it is, this means there is greater demand being exerted for goods and services–more money supply and the same amount of goods and services.  Each dollar is worth less than it was before and it therefore takes more dollars to make purchases.  You all know this is called inflation.  In this case, it would be $17 TRILLION worth of extra money supply, all at once.  I may be wrong but I don’t think we have had that amount of money supply increase at one time ever, either by printing more money or purchasing government bonds.  The total in circulation right now in the United States is less than $17 trillion. So I can’t imagine we could have injected so much in a single shot.  Needless to say, I don’t think it would work very well (understatement).  But people actually think it would.  We must find a way to dispel this appalling ignorance of economic ideas.  So that is my “bad” quote for the day.