Debt and its Risk of Inflation in America

Rachael Garcia

The Federal Reserve, “the nation’s central bank,” has the responsibility of managing the money supply of the country.[1] Over the last decade, the American government has obtained a debt of more than $19 trillion USD. Debt, the amount of money that one party or nation borrows from another, is meant to be paid back fully and usually with interest. America borrows large sums of money from different parties and is in debt to pay off the loans once they have the money to do so, but the United States has been continuing to borrow money and acquiring even more debt that cannot be repaid. The American debt has still not been fixed, but continues to steadily and quickly increase in price. Debt becomes a problem when the money borrowed cannot be paid back; “the accumulation of high levels of government debt can have severe negative consequences.”[2] To try and pay off a nation’s debt, some people may consider printing more money. Although this idea may seem to be beneficial if a country’s debt can be paid off, the economy would actually be worse off because printing excess money can cause inflation.
Printing money appears to be a reasonable idea, but “the main problem with printing money is the danger of inflation.”[3] A distinct link between debt and inflation exists and needs to be noticed. Quite simply, inflation means that average prices are increasing. The value of money decreases as prices shoot up, which basically means a dollar buys less than it used to. A dollar has value because people have confidence and believe that they will be able to use this money as a means of exchange. Well, there “lies the value of modern currency: It has purchasing power.”[4] The purchasing power of a dollar decreases as it loses people’s confidence and, therefore, its value. When people believe that their money will lose its worth, they will try to use up the dollars quickly before they lose value, which will drive up the price of goods, services, and eventually wages across the whole economy. Too much demand is a primary cause of inflation. It is important to note that the macroeconomic policies include the idea of maintaining a low inflation rate that in a stable manner. If a government makes the choice to of money printing, they will have to face losing the value of their currency.
Deciding to print excess money would not be a good option to help pay off the debt because inflation is bad for the economy. The country will be “no better off than…before” since the money becomes devalued.[5] Inflation, a massive collapse of the currency system, will cause many economic problems. In the case that the dollar value becomes unstable and out of hand, inflation is not good. It needs to be understood that printing excess money and higher inflation or a weaker dollar will not boost the economy. “An unstable, declining dollar hurts, rather than helps, economic growth and jobs.”[6] People should become aware that an economy does best with a stable dollar. By maintaining a stable dollar, the economy will be able to be stable as well. Printing money to fix the debt in America would cause a high and unstable inflation throughout the nation that would harm the economy.

Citation (Image):
“Making Money.” Digital image. The Towne Blog. February 19, 2016. Accessed June 20, 2016. https://pixabay.com/static/uploads/photo/2015/02/13/09/47/finance-634901_960_720.png.

Endnotes:
[1] What is the Purpose of the Federal Reserve System?” Board of Governors of the Federal Reserve System. February 4, 2014. Accessed June 20, 2016. http://www.federalreserve.gov/faqs/about_12594.htm.
[2] Government Debt & Inflation.” The Money Enigma. March 31, 2015. Accessed June 20, 2016. http://www.themoneyenigma.com/government-debt-inflation-the-important-role-of-fiscal-policy/.
[3] “What Does Printing Money Mean?” Banking My Way. Accessed June 20, 2016. http://www.bankingmyway.com/save/savings/what-does-printing-money-mean.
[4] Charles Wheelan, Naked Economics: Undressing the Dismal Science (New York: W. W. Norton & Company, 2010), 229.
[5] Moffatt, Mike. “Why Can’t the Government Just Print More Money?” About.com Education. October 22, 2015. Accessed June 20, 2016. http://economics.about.com/cs/money/a/print_money.htm.
[6] Woodhill, Louis. “Why Higher Inflation Is A Very, Very Bad Idea.” Forbes. January 23, 2014. Accessed June 20, 2016. http://www.forbes.com/sites/louiswoodhill/2014/01/23/why-higher-inflation-is-a-very-very-bad-idea/#59a408377e10

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