Keep in mind - this is macro stuff, and has nothing to do with your test. I'm glad you're interested, though! :)
Inflation is a weird thing. Technically, it's a decrease in the value of your money - something that cost $1.00 last year costs, on average, $1.03 now (at 3% annual inflation). This is a good thing - it allows for growth. But our government has a fear of inflation almost as much as a fear of deflation (like during the Depression).
If inflation rises too fast, the government (the Federal Reserve, who controls our money supply) will step in and cut down on the money supply (usually by changing interest rates) in order to get it under control. There's a fear that hyperinflation could occur - and that's talking about something like 1000% annually (which has happened in the past in other countries).
If we just printed $6 trillion to pay off the debt, it limits the scarcity of money and cuts the value. If there are 6 trillion diamonds on the ground, having one diamond won't mean anything. It's the same idea. So - your money becomes worthless. Literally, if they print that much at one time.
The money is owed to people who have loaned money to the government in the form of Treasury bills & bonds. Those people would get some of that printed money in that case, but it would be limited - $1000 here and $2500 there. As the value of the money people had would drop, prices would rise - and probably quickly. Wages would not keep up with the prices, and we would see layoffs as companies could not keep up with their costs.
And with such a huge influx of money at one time, this would happen quickly.
Only a portion of the money is owed to US citizens - we do owe other countries, also, so the currency would be leaving the country, which is a whole different story.
'Course, this is all theory and may not happen at all. But I don't think that politicians are willing to take the chance.
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2 comments:
Wow, you guys have great points!
I'm going to just throw something else out there for you - keep in mind that under the Clinton administration, the budget was balanced (taxes in equaled government spending) for the first time in decades, and the current administration is the first in history to cut taxes during war time, erasing the balanced budget (even a surplus for two years under Clinton, if I recall correctly) and creating a new deficit (which is added to the debt).
Deficit = annual spending is more than what's brought in as income
Debt = what is owed overall (all possible deficits)
This chart was kind of interesting - it's not colored by political party, but by who increased or decreased the debt during their administration:
http://zfacts.com/p/318.html
Surprising for JFK, LBJ, Nixon - the debt decreased during Vietnam. This is as a percentage of GDP, which shows the productivity. Notice the jump in the 1980's - trying to get out of that "stagflation" stuff.
KM
Huh - interesting site, Nicki - I like the comparisons. You could have sent 12 million HS grads to college for 4 years on full scholarships for the same amount.
'Course, that would create more people with job skills but no jobs available in this world of college grads getting McDonald's jobs just to pay rent...oops...sorry...I'm not supposed to bring that up to young adults wanting to go to college...
Anyway - creating money to pay off domestic debt causes the same problem as the original post - more money entering the economy, causing inflation without commensurate wage increases. Costs rise, layoffs happen, stagflation again.
Sorry.
Joe hit it before - raise taxes or decrease spending. What politician is ready to say that, though?
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