ELi5: How can USA print unlimited notes to pay its loan because it has loan in US DOLLAR?


I recently saw some videos where some guys say that USA can just print more notes to pay its debt because its debt is in US Dollar while other countries can’t, but isn’t it impossible because it would degrade the value of US dollar because that’s the reason countries don’t print unlimited currency notes.

In: 0

Who cares. When the value to dollar degrades and inflation rises just raise the interest rates. Now U.S. can export the inflation and currency degradation to other countries.

Ask a German who knows what went down after World War 1 what rhe downside of printing more money to pay off loans is

Any nation with “fiat currency” like the United States can print more notes, though they usually just create money electronically these days.

Nations using the Euro can’t do this without permission from the European Central Bank (ECB) because the supply of Euros affects all nations using Euros. However, these nations could revert to their older currency (eg, Greek drachma) and create as many of those as they want, but the exchange rate against the Euro would likely go down.

As others have noted, indiscriminately printing money leads to hyperinflation. My favorite recentish example is Zimbabwe (https://www.foxnews.com/world/one-us-dollar-z35-quadrillion-as-zimbabwe-phases-out-old-currency), but it also happened after World War 2 (the old “wheelbarrow full of money to buy a loaf of bread” story).

To avoid printing money on a political whim, the US currently delegates money creation to the Federal Reserve Bank. However, some representatives have questioned whether this is a good idea and whether Congress should play a more direct role in money creation

Say that money supply is the direct cause of inflation. Its not, but we can assume it for this model.

If you have to pay 1 trillion in interest payments and you have an economy that is valued at 10 trillion, when you add 1 trillion to the money supply you will increase it by 10% which causes prices, in this model, to increase by 10%. So your interest payments need to be 10% higher for lenders to see a real 10% growth. And we continue this loop until we eventually reach 1.111 trillion as the value those receiving interest payments need. Everything is balanced at this number as we have a trivial tail of decimals that is repeating.(10% of 10% of 10% leads to a really small number.

An important thing to note is that interest payments are always a small part of the sum of debt. You don’t pay off the whole debt in a year, you just pay the interest.

It is true that the US can print more money to pay its debt, but it would not be a wise decision. Doing so would cause inflation, which would reduce the value of the US dollar and make it more difficult for the US to pay its debt. This would also lead to higher interest rates, which would make it more difficult for the US to borrow money in the future. Inflation also reduces the purchasing power of the US dollar, meaning that people would need more money to buy the same goods and services. In the end, printing more money would be a short-term solution with long-term consequences.