A Few Words Concerning the Ubiquitous Term, “Printing Money”

For one reason or another, which to this day baffles me, some of my colleagues have allowed the term “printing money” to go unchallenged. Because so many abuse and misuse the term when referring to how the federal government spends, it’s as if some are quite content to just let orthodoxy have its way and join in for the sake of facilitating some kind of public understanding.

Understanding of what, though? It must be the Gold Standard, because “printing money” certainly does not advance any understanding of how federal spending works today. It is not a simple matter of quibbling over terms either that I am engaging in here. The federal government crediting bank accounts with its own IOU is not “money printing” and rather than building a float and joining in the “Nonsense Parade”, we should be disabusing the public from using the term.

“Printing money” always conjures up hyperinflation in the mind of the public. Always. This is because the public is trained to view the US dollars that exist in the private sector as “real” dollars and should government try to spend more than it takes in through taxation or can borrow, then it must issue “fake” dollars, or more popularly referred to as “funny money”. The whole thing is patently absurd and it simply has to stop. Donald Trump states that the US government cannot default on the national debt because “we print the money” and suddenly, here we all are saying, “What do you know? He’s telling the truth!”

No he is not. The only thing Donald Trump is telling the truth about is that we cannot involuntarily default on the national debt. The “we print the money” statement is a lie.

For the sake of facilitating proper understanding by laypersons, I will state quite clearly that the US government, the Australian government, the UK government and all other governments that issue free-floating, non-convertible fiat currencies simply cannot and do not “print money” to fund spending – ever. “Printing money” refers to a gold standard spending operation; a monetary system that is now defunct.

Briefly, the US dollar is just a number with a fancy “$” symbol. During the gold standard, the US government needlessly pegged the US dollar to gold. When it did that, the government restricted the supply of US dollars to the supply of gold. In order to defend its gold reserves, the US government then had to either tax or borrow to fund its spending, thus keeping the supply of US dollars consistent with the supply of gold in reserves. If it wanted to expand its supply of US dollars, then the US government needed to bring in more gold from somewhere; either dug up, panned out of rivers, or through payments in gold from international trade. Here’s where printing money comes in.

If the US government wanted to then spend above and beyond what it took in from taxation or borrowing, then it could simply begin issuing US dollars over and above what it had in gold reserves. Obviously, such a thing could have serious consequences. With Bretton-Woods, the situation changed little. Here, governments would flood foreign markets with their currency, thus necessitating that the excess currency be mopped up to defend exchange parities.

So, when we join the bandwagon, thinking there’s nothing wrong with the term “printing money”, what we are saying is that the US government is desirous to spend over and above its revenue and is indeed issuing “funny money”, potentially flooding the private sector and foreign markets with excess dollars that are “fake”. Thus, we are kicking the door wide open to more ridiculous and frustrating arguments about hyperinflation; Zimbabwe this and Weimar that, flying out of the mouths of people who have no clue what they’re talking about. It’s only making our job harder.

[I’m adding an extra paragraph here to answer a few questions that I’ve received. When we use the term “printing money”, then “funny money” is what the public hears. Academically, what we are saying is that the US dollar is pegged to something unknown that needs defending and that the US government, by spending over and above its revenue, is issuing dollars in excess of its reserves of this unknown commodity. That is just patently absurd.]

– The US government issues the US dollar at will, out of thin air, by crediting bank accounts with its IOU.

– The US government does not require revenue from any source to spend.

– The US government does not need to borrow from private entities to spend.

– There is nothing pegged to the US dollar that must be defended.

– If it spends over and above what it taxes or sells in bonds, it is not going broke, because it is the only issuer of US dollars, always has been and today, that supply of US dollars available to the US government is always equal to infinity.

The US government and yes, the Australian and UK governments including all governments that are sovereign currency issuers do not and simply cannot “print money”.

This “printing money” nonsense has to stop.