‘Printing money could create more problems than it solves.’
The global economic crisis has yet to bottom out. The major industrial economies are in a deep recession, and growth in the developing world is slowing dramatically. The danger of falling into a deflationary trap cannot be dismissed for many important economies.
The swift and massive shock of the coronavirus pandemic and shutdown measures to contain it have plunged the global economy into a severe contraction. According to World Bank forecasts, the global economy shrunk by 5.2% in 2020; the deepest recession since the Second World War, with the largest fraction of economies experiencing declines in per capita output since 1870.
An economic and financial crisis has engulfed the world. Banks have collapsed, stock prices have slumped and there has been an unprecedented decline in economic activity. Governments responded with massive emergency measures, but the crisis continued to spread and large numbers of workers have been laid off all over the world. Many see the crisis as an opportunity for renewed regulation and democratic re-structuring of the global economy; but solutions are complicated by the depth of the crisis, by the lack of strong global institutions, and by overlapping crises in the environment, natural resources and global trade.
The blow is hitting hardest in countries where the pandemic has been the most severe. An issue as such has made people across nations wonder the best solution to overcome the hike. Many questioned- “Why can’t we just print more money?”
The question cannot develop into an answer because when a whole country tries to get richer by printing more money, it rarely works. If everyone has more money, with the same amount of goods and services being produced- the prices go up instead, and people find out that they need more and more money to buy the same amount of goods. To get richer, a country has to make and sell more things – whether goods or services. This makes it safe to print more money, so that people can buy those extra things.
At the moment, there is only one country that can get richer by printing more money, and that’s the United States (a country that is already very wealthy). This is because most of the valuable things that countries around the world buy and sell to one another- including gold and oil- are priced in US Dollars. So, if the US wants to buy more things, it really can just print more dollars. Though if it printed too many, the price of those things in dollars would still go up.
Of course, poorer counties can only print their own currency, not US dollars, and if they print a lot more, their prices will go up too fast, and people will stop using that money. Instead, people will swap goods for other goods, or ask to be paid in US dollars instead. That’s what happened in Zimbabwe and Venezuela, and many other countries that were hit by ‘hyperinflation’- a rapid, excessive, and out-of-control general price increase in an economy.
Too little money makes prices fall, which is bad. But printing more money, when there isn’t more production, makes prices rise- which can be just as bad; printing more money doesn’t increase economic output– it only increases the amount of cash circulating in the economy. If more money is printed, consumers are able to demand more goods, but if firms have still the same amount of goods, they will respond by putting up prices, hence causing inflation.
Instead, the governments from all around the world could influence demand through changing ‘spending’ or taxes by investing in new infrastructure to help stimulate demand and create jobs; or increase the disposable income of workers, encouraging them to spend more; or the Central Bank could influence demand and supply of money by cutting interest rates, among other possible solutions to overcome such economic crisis.
“What we know about the global financial crisis is that we don’t know very much.”
- –Paul Samuelson