Primative question about currency

Discussion in 'Economics' started by tj07, Dec 30, 2006.

  1. tj07


    Since I am only just beginning to get my head around the concept of currency, interest rates and the general economy, can someone please give me an answer to a hypothetical question i have?

    What would be the reprecussions of a Government paying for products or paying off dept by printing extra cash to use as buying power, if any? Like sinking unaccounted for money into the system If that makes sense? Inflation?

    I'm not sure this question even makes sense.

    But any feedback appreciated.
  2. c0ldlimit


    Well it makes sense to me that two repercussions of printing money would be: 1. (hyper) inflation (i.e. more money supply for the same expenditures)
    2. currency depreciation
  3. tj07



    I have a few more questions...

    Strong exports push up dollar by default of Importer paying in dollars, right? Pushing up buying power of dollar, relative to that of other countries.

    How does this bode for US based companies, and what role does GDP play in all of this?

    What about the effect on exports when the dollar gets 'too strong' and importers go elsewhere? I guess the dollar starts to weaken. But I'm also quessing the fed steps in to prevent too much $ strenth/weakness?

    All help appreciated.
  4. firstly there are many errors in this post.

    secondly, only in your dreams you'll find solid answers on how it actually it works..

    in reality, the truth is we don't exactly know, that's because there are many factors effecting the economy. there are alot of problems with making causal inferences as -which is influencing which or what comes first? if anyone had the answer, or can have a good idea of all the factors, they can be very rich. you're basically asking how the world turns?

    now in general, to give a basic answer, we say "keeping all other things equal" which means my answer is not worth anything:

    strong exports don't push up the dollar. it is the foreign demand of domestic US goods that increases the demand for dollar (they need dollars to buy USD-denominated goods). but can this alone drive up dollar? NO. many other factors, - interest rate, inflation etc.

    btw, when dollar is very weak, US goods become very weak, thus exporting rising (goods become cheaper for foreigners) i.e. the government may have incentives to weaken the dollar. this means exports can be strong both with a strong dollar and a weak dollar.

    GDP has no play in this, it's just a measure of the economy. it's components may or may not relate directly to dollar exhange rates or domestic interest rates.

    if the dollar is very strong, this makes US goods expensive to other countrys, and we would EXPECT export to weaken BUT at the same time raw materials for US producers become cheap too (so that input costs lower) i.e. total costs and prices should lower. in short, only a good economist that has taken all the relevant factors into account can have a idea of what the net-result may be.

    the best place to start before asking big questions, is to think about the simple SUPPLE-&-DEMAND framework.
  5. tj07


    Thanks for the feedback. I'm learning fast that nothing is as clear cut as it first might seem as there are many factors at play.

    Thanks again.
  6. TradeTheNews

    TradeTheNews ET Sponsor

    The Central Banks have been "printing" money for many years now....This includes the FED, BOJ and others. Back in late 2001 the global issue of "Deflation"re-emerged and the Central Banks again went into a mode of "Inflate or die". The printing presses of money thus were implemented

    This 'excess' supply has had a depreciating effect on some various pairs the past few years as the US Dollar and Japanese Yen have depreciated against numerous cuurencies.....

    The excess liquidity in this round of global liquidity has found its way into numerous asset types with commodities and Housing gaining significantly from 2001.

    Now that the Central Banks are in the process of withdrawing liquidity (ECB, Swiss Nat'l Bank, People's Bank of China) some of the commodity markets, housing are retracing some gains .....