General Discussion
In reply to the discussion: If You Have The Ability to Create Your Own Currency, How Can You Ever Be Broke? [View all]davidn3600
(6,342 posts)The more currency in circulation, the higher the velocity, and the higher the demand for goods and services. This leads to devaluation of the currency.
The Weimar Republic tried to print its way out of debt and out of poverty. At the conclusion of WWI, the treaty of Versailles required Germany to pay reparations for the war. This killed the economy. In order to pay the bill, they printed money. The currency quickly became worthless. In 1919, you could buy a loaf of bread for 1 mark. In 1924, only 5 years later, that loaf of bread cost 100 billion marks! No one had anything. Their money was all destroyed. The only people that were rich were those who had gold or diamonds or material things of value. The mess is what helped contribute to the rise of Nazism as the people grew desperate and afraid.
Increasing currency supply does not create wealth. You cannot create wealth out of thin air. It has to come from something. It has to be based on something. Even when the Fed dumps money into the supply with these quantitative easing programs, they are usually offsetting the rise of currency with the bond market.
Now to be clear, what the Fed is doing right now is not technically bad. The Ron Paul people are sounding the alarm bells far too soon. But what the Fed is doing is only designed to work in the short term, during an economic recession or depression. It's supposed to be a band-aid. It's not designed to be a permanent fix. If the Fed is still doing these quantitative easing into the 2020s....then we might have some very serious problems on the horizon. This economy needs to get moving within the 5-10 years in order to get out of this.