Print more money?By mid-August the government coffers could be running dry if there isn't some upward adjustment to the federal debt ceiling made by Congress in the next few days. One proposal to deal with the issue: Print more money.

But printing more money can mean several different things in government-speak. The first way for the nation to make money is to literally print it up at one of the money factories in Washington, D.C., or Fort Worth, Texas. Currency is printed year-round to meet both for increasing demand for more bills and to replace those that wear out and are pulled from circulation. Last December, the Fed placed its 2011 order for 6.7 billion new notes at a value of more than $214 billion.

Over the past 20 years, the amount of currency has steadily increased year after year, due partly to quantitative easing programs and partly to the rapid rise of the $100 bill as a world currency. In 1990, there was just a little over $268 billion in currency in circulation, and around 1.4 billion $100 bills floating around. Today there are more than 7 billion Benjamins out there in the world -- $704 billion worth, according to figures from the Federal Reserve. The majority of those are held outside the country, the Fed estimates. The total value of cash currently in circulation, along with money in checking accounts, is just over $1.9 trillion.

The other way the Fed "prints" money is more virtual: The Central Bank buys assets from banks with newly created "electronic money" to add credits to the account balances at those financial institutions. Voila, the banks now have more money, which means more money in circulation. This is also known as quantitative easing.

In either case, Economics 101 says that printing more money is a short-term fix to financial problems, and the downside to doing it is inflation. The more money there is in circulation, the less value a dollar has. And that brings us to current events, where one projection suggests the government will be at least $135 billion short to pay its bills for August if a deal is not reached. Which begs the question: Which is the bigger threat at this juncture, the risk of default or the risk of inflation?

Print more paper money, but manage the inflation, says economist Peter Morici. He is a professor at the University of Maryland's Smith School of Business and former chief economist at the U.S. International Trade Commission. He estimates that it wouldn't take much -- less than $200 billion in new currency -- to tide the government over.

"As the Treasury spent the money, the Fed would sell bonds to remove it from the money supply," Morici told DailyFinance. He wrote on July 5 in the Baltimore Sun:
The Treasury has the power print money to pay its bills. That would create the danger of too much money in the hands of the public and, thus, inflation, but the Federal Reserve has options to neutralize this problem. The Fed holds on its balance sheet about $2.6 trillion in securities, mostly Treasury bonds. As the Treasury prints money to pay its bills, the Fed could sell bonds to the public to keep the amount of money in circulation from rising. How? Remember that the money supply is currency the public holds in its wallets and deposited in checkbooks - but the statutory debt limit applies to Treasury bonds held by the public and the Fed.
In other words, even as the money supply rises, the sale of bonds would offset the currency boost and control inflation. However, inflation hawks, wary of additional quantitative easing, see this fix as a "further mask the underlying problems in the economy and prolong the malaise" according to an editorial in the Orange County Register.

Increase your money and finance knowledge from home

Getting out of debt

Everyone hates debt. Get out of it.

View Course »

Banking Services 101

Understand your bank's services, and how to get the most from them

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

Money,money,money!! Money isn't everything my friends!

May 07 2013 at 7:37 AM Report abuse rate up rate down Reply

Printing money does not create wealth. It destroys wealth. It dilutes the value of all savings and fixed income. The Weimar Republic (Germany for those of you who never saw a history book) tried printing its way out of poverty in the 1920's. Pretty soon they were printing billion mark notes. It got so bad that it took a wheelbarrow full of money to buy a loaf of bread. Every one was wiped out. Only people who had some gold jewelry or diamonds had anything of value. The end result of that debacle was the rise of Adolf Hitler and the Nazi Party and World War II. When you have lost everything and your children are growing up with deficiency diseases because you can't buy food, then you don't mind going to war. Ben Bernanke has already cranked up the printing presses. Is this what we want?

August 01 2011 at 2:08 PM Report abuse rate up rate down Reply

Prining more money than we have could be dangerous. The dollar value would go down,but the pdice of everything else will go up very quickly. Our dollars should equal our weight in gold. If it doesn't then it's not worth the paper it's printed on. I saw a show on the History Channel that talked of this very problem. They said it cost more to make & print the money than what the dollar value is worth. I thick we will be using more plastic money/credit cards just to save the Government from having to make money. More & more Government programs are already using plastic instead of cash. Our Food Stamp Programs use plastic cards that work just like debit cards..They are boosted every month and require a pass code to use them. There will be no more food stamps for drugs. They cant be sold. They are re used @ the beginning of every month. I think our military is using the same method to pay the military men & woman. So I think the Government is getting away from printing so much money, because of the cost to make it.

August 01 2011 at 3:11 AM Report abuse rate up rate down Reply

Formula for revolution...Let the leeches and flotsam elect politicians who then use the fruits of productive elements to buy votes and reward cronies.

July 31 2011 at 7:27 PM Report abuse +1 rate up rate down Reply

Pretty good idea to get into precious metals while you still can ....The dollar is indeed finished ....silver is still affordable now but will not be in a few years ....easily expect $2000 gold ! The country has had it , too many people here now , no domestic employment , opportunity dried up , its a done deal....every other American will soon be collecting unemploment, welfare or social Security , at least until the well runs dry , and when it does ...can you spell REVOLUTION .....look at your history books folks, where have we seen this scenario played out before?

July 31 2011 at 4:10 PM Report abuse +2 rate up rate down Reply

Its time for our gov. to grow up and live within its means, this putting off, or shifting to bonds is still increasing debt. We should do away with subsidies, that alone will help in a big way, Overhaul the tax dode, go to a sales tax, and that would cut cost of IRS. Privatize the postal dept, fire alll the zars, Cut polical salaries, and do away with pensions for politians, they would pay into social sec, just like anyone else. no more free lunch.

July 31 2011 at 11:31 AM Report abuse +3 rate up rate down Reply

it seems that common folk know more about our looming debt problem/s than our so-called experts in WASHIGNTON DC. Stop spending stupid !!!!!! It's that simple......every household and working person in America has controlled their spending and is still doing it. The new norm now is Save and cut out debt. Wake up you idiots in DC !!!! Before it is too late......maybe it is already too late !!!!

July 31 2011 at 11:19 AM Report abuse +1 rate up rate down Reply

Printing more money can be part of the solution.
If inflation results, it really is a tax on everyone.
Every consumer in this country shares in that even illegal ones.

Everyone with a savings account in this country is currently paying a hidden 2-4% tax on their savings value in the form of 'no income' or maybe 0.5% income. Shouldn't a conservation investor realize a before tax return close to the average inflation rate (after tax return will be 30% less after Uncle Sam income tax).

July 31 2011 at 10:54 AM Report abuse -1 rate up rate down Reply
1 reply to TALLEYGT's comment

HELLO..............everytime they print more money, what we have is worth less.

July 31 2011 at 1:57 PM Report abuse +2 rate up rate down Reply

By printing more money they will only make the dollar weaker and could put us into another depression like in the 1930s.

July 31 2011 at 9:46 AM Report abuse +4 rate up rate down Reply

"LOOMING CRISIS" The sky is falling... Lets see THEY pass a law saying we can't spend over So Much. THEY raise the So Much 100 times. When they need a smoke screen to hide the fact that 15% of American workers are out of work and THEY choose to do nothing about it. All of a sudden we have a "LOOMING CRISIS". Hummm!

July 31 2011 at 12:55 AM Report abuse +1 rate up rate down Reply