I need help with ECON 101, why does government spending cause inflation?

none | 6/15/22 | self

[fwdude]

The government cannot spend what it does not have. So, it must print trillions of more money without backing of real capital. More dollars chasing fewer goods causes inflation.

[BitWielder1]

The money itself becomes cheaper, so you need to spend more of it to buy a given product, even though it's value of the product did not change.

[Blurb2350]

That s an excellent suggestion! And while you're over there on Amazon buying Sowell, drop a copy of Henry Hazlitt's Economics in One Lesson in your cart. Read those two books (they're not at all difficult) and you'll know more about the workings of our economic system than 90% of the general public and 100% more than Democrat politicians.

[Gnome1949]

I knew we were in big trouble when the gubmint was handing out more money to the unemployed than they could earn working. Why put out the effort to work when getting “free” money paid better?

[Nicojones]

Let Uncle Milty explain it - https://www.youtube.com/watch?v=jE7zxo61Xc8

If you slowly watch the whole episode, it will answer all of your questions and is completely applicable to our current stagflationary situation. History really does repeat.

[BiglyCommentary]

Probably 98% of what you’ll read or be told about money is simply flat out wrong.

Read this:

https://www.pragcap.com/where-does-money-come-from/

Teaser excerpt:

There’s a reason why myth # 1 in my “biggest myths in economics” is “the government prints money”. It is, by far, the most pernicious and misleading of the economic myths that exists. I was reminded of this today as I was reading a piece in Reason by John Stossel who is discussing the merits of replacing Hamilton on the $10 bill. He writes:

“But none of us would have to fight about whom to put on currency if it weren’t all created and printed by a central government.”

Ah, but John – we already have an entirely private money creation system. It just so happens to be controlled by these things called banks which compete within a private market based system to create loans! So, maybe we all need to be reminded where “money” really comes from. While it’s true that the government can “print” money it’s much more important to understand where money actually originates and how that printing fits into the broader context because it doesn’t work the way most people seem to think it does. I hope this simple explanation helps clarify:

1) Banks create most of the money in our system. Loans create deposits and deposits are, by far, the most dominant form of money in the economy. Importantly, banks do not “multiply” reserves as is commonly believed. Banks make loans first and find reserves later. The money multiplier is a myth. So, if you want to say someone “prints money” you would be most accurate saying that private banks print money.

2)...

[Cletus.D.Yokel]

On top of that, the “money” the government is printing and spending TODAY is leveraged against the future indebtedness of our progeny.

IOW, they print money knowing they can raise taxes on our grandchildren to cover it.

[BiglyCommentary]

#26

[Jonty30]

Government has to borrow the money or print money to spend.

[BiglyCommentary]

2) The government is a user of bank money. When the government taxes Paul they take Paul’s bank money and redistribute it to Peter when they spend.

3) If the government runs a budget deficit (taxes less than it spends) then Paul buys a bond from the government and the government gives Paul’s bank deposit (which he used to buy the bond with) to Peter. Paul gets a bond which the government created in much the same way that a private corporation creates a bond when they issue corporate debt. If you want to say these entities “print” financial assets then fine. Corporations print stocks and bonds every day and you don’t hear the world exploding with hyperinflation rants because of it. Likewise, the government “prints” bonds when it borrows.

4)...

[bert]

Government spending does not cause inflation

An increase in the money supply produces all types of spending. Too much money chasing too few goods produces price increases.

Inflation is at root a monetary phenomenon

[MercyFlush]

#1. The overwhelming majority of US dollars are not printed at all. The dollar is primarily a cybercurrency that can be generated at will by the Federal Reserve.

#2. “Supply and Demand” also applies to currency. A large supply is worth less than a smaller supply. Creating more of a currency in a growing market can prevent deflation. Creating too much is inflationary. Creating more of a currency in a declining market will be inflationary.

[I want the USA back]

I’ve seen a few Milton Friedman videos on YouTube. They helped me get an elementary understanding of economics.

[Red Badger]

Here’s a simile:

Say you have 1 Gold Bar, like they used to have a t Ft. Knox.

Carrying around a Gold Bar is very heavy and not really convenient to by stuff and make change.

So, you make a note on a piece of paper that says to the person you give it to “You own a piece of this Gold Bar.”

But you need to buy more than just one thing, so you print out another note that says the same thing, and give it to the next vendor you buy from.

Now that person owns a piece of your Gold Bar along with the other person and yourself.

You do this a hundred times, and each person now owns 1/100th of that Gold Bar.

You do this a thousand times, and each person now owns 1/1000th of that Gold Bar.

You do this a ten-thousand times, and each person now owns 1/10,000th of that Gold Bar.

You do this a hundred-thousand times, and each person now owns 1/100,000th of that Gold Bar.

You do this a million times, and each person now owns 1/1,000,000th of that Gold Bar.

Each subsequent person’s piece of paper is worth less and less as more and more pieces of paper are printed.

This is what the Government is doing, except they don’t have a Gold Bar..........................

[9YearLurker]

Even worse, the Fed “creates” the money to buy that government debt—and enrich the banks, and...

[RaceBannon]

your posts did not answer my question I believe.

Printing money dilutes it’s value. More money chasing the same quantity of goods and service drive up their prices.
CarmichaelPatriot

Well, are me and you getting this money? Who is getting this money? Who is able to affect the quantity and services just because the govt prints money?

---

Uh, too much money chasing too few goods?
buckalfa

Whose money? Are you getting this money? Are you causing the scarcity of goods through your spending or are you getting paid wages? Are you getting the government money? Who is getting the government money that affects supply and demand?

---

WORK PRODUCT
When you take money from someone and give it to someone else to spend (which is exactly what government spending is) there is no WORK PRODUCT the person receives for his money.
So the second person get to spend that money (he didn’t earn) on the same amount of existing goods. So, more money chasing fewer products = price increase.
Anything the government does to disturb supply and demand breaks everything.
Mr. K

Who is receiving that money? Welfare? Has welfare payments gone up so much in the last 6 months to cause this inflation? Who is receiving the money from people who are having it taken from? Who determiones who gets the money that is printed? Arent programs like welfare and govt payouts for our population already in place and not new?

---

It’s easy, for this case. If you have a static supply of goods, but print a bunch of extra money and hand it out to people to buy those goods, they’ll bid up the prices...hence inflation.
bobl-

Who is receiving this money? Where can I get this money they are printing so I can buy these goods that will affect the economy?

---

Government gets the money to spend either from raising taxes (thus taking money that would otherwise be going to the private sector) or by issuing debt. Where does it get the money to issue new debts? Oh, well you see the Treasury just creates it out of thin air. Thus there is YET MORE money chasing the same amount of goods in the economy. The result is inflation.
FLT-bird

Why does the creation of new debt or issuing of bonds for investment cause prices to rise? While my bank account might go in the red, how did that cause gas to rise?
How did the govt issuing bonds cause drilling to stop?

Govt policy seems to affect more price rise especially in the oil and gas profession, yet this just is an incomplete answer.

How does the simple printing of money cause inflation? Shutting down oil wells is not printing money...

[RaceBannon]

your posts did not answer my question I believe.

Printing money dilutes it’s value. More money chasing the same quantity of goods and service drive up their prices.
CarmichaelPatriot

Well, are me and you getting this money? Who is getting this money? Who is able to affect the quantity and services just because the govt prints money?

---

Uh, too much money chasing too few goods?
buckalfa

Whose money? Are you getting this money? Are you causing the scarcity of goods through your spending or are you getting paid wages? Are you getting the government money? Who is getting the government money that affects supply and demand?

---

WORK PRODUCT
When you take money from someone and give it to someone else to spend (which is exactly what government spending is) there is no WORK PRODUCT the person receives for his money.
So the second person get to spend that money (he didn’t earn) on the same amount of existing goods. So, more money chasing fewer products = price increase.
Anything the government does to disturb supply and demand breaks everything.
Mr. K

Who is receiving that money? Welfare? Has welfare payments gone up so much in the last 6 months to cause this inflation? Who is receiving the money from people who are having it taken from? Who determiones who gets the money that is printed? Arent programs like welfare and govt payouts for our population already in place and not new?

---

It’s easy, for this case. If you have a static supply of goods, but print a bunch of extra money and hand it out to people to buy those goods, they’ll bid up the prices...hence inflation.
bobl-

Who is receiving this money? Where can I get this money they are printing so I can buy these goods that will affect the economy?

---

Government gets the money to spend either from raising taxes (thus taking money that would otherwise be going to the private sector) or by issuing debt. Where does it get the money to issue new debts? Oh, well you see the Treasury just creates it out of thin air. Thus there is YET MORE money chasing the same amount of goods in the economy. The result is inflation.
FLT-bird

Why does the creation of new debt or issuing of bonds for investment cause prices to rise? While my bank account might go in the red, how did that cause gas to rise?
How did the govt issuing bonds cause drilling to stop?

Govt policy seems to affect more price rise especially in the oil and gas profession, yet this just is an incomplete answer.

How does the simple printing of money cause inflation? Shutting down oil wells is not printing money...

[logi_cal869]

It’s complicated, but also quite simple. It’s true: Only government creates inflation.

You need ‘the man’ to explain it: Milton Friedman.

Here’s one:
https://www.youtube.com/watch?v=u6GWm0GW7gk

Here’s another:
https://www.youtube.com/watch?v=6LfUyML5QVY

Here’s others:
https://www.youtube.com/results?search_query=milton+friedman+on+money+supply

Oh, but when it comes to reckless spending, “they’re changing people’s lives” alright: The next 10 years are going to be a debacle unless Congress collectively pulls its head out of its backside.

[Honest Nigerian]

Seems like the OP is a “seminar caller” as Rush would have said.
Just go to YouTube and seen what Milton Friedman said.
Even a liberal or RINO can grasp it. ( Not saying that describes you; but I am scratching my head.)

[Tupelo]

Well if nothing else, printing money backed only by the “Full Faith & Trust” in a government headed by Dimjo Biden should send that currency straight into the chitter.
Plus something for nothing ain’t worth nothing and it ain’t free.