On the evening of the seventeenth of January, the second data issued by the US Treasury revealed the increase in the value of the Kingdom of Saudi Arabia from the US Treasury bonds by about 3.8 billion dollars during last November to reach 149 billion dollars.
In the same month, China's possession was 1.176 trillion dollars, while the Japanese possession approached about 1.08 trillion dollars.In general, the total value of all countries of American bonds has reached 6.3 trillion dollars, of course, unlike the US government debts of about 14 trillion dollars.
The Americans owe their currency only and this is a feature that no other country owns but the United States, are they not able to print to transport 60 billion papers of the hundred dollars to pay their debts to foreign countries?But if they were able to pay their loans by just printing more money, why did they need to borrow in the first place?
Trump: We Americans can print more dollars
- "Printing money to pay the country's debts" Why did you not think of this idea of any US official while searching for a solution to the growing debt problem?In fact, this idea came to the mind of one of them, and this person is the current head of the United States, "Donald Trump".
On May 9, 2016, Donald Trump said in statements to CNN: “If interest rates rise, we can buy our debts again at a reduced price, provided that we can receive adequate liquidity.”."Those who believe that we will fail to pay our debts are disappointed.We are the United States government.I hate to tell you that, but we cannot fail to pay our debts because we can print more dollars."
- The "Trump" proposal, which is believed to be a genius and that he is thinking outside the box. In fact, he reflects the ignorance of the Republican President of the simplest basics of economics that anyone knows related to this topic..In short, the idea of printing the United States for funds to pay all or part of its debts is catastrophic.
Theoretically or on paper, the United States can actually print money to pay its debts, but this option is not possible or practically impossible because it will lead to much greater problems.In the first place, the country will be involved in the swamp of excessive inflation, so that the prices of goods and services will rise quickly, and the economy will enter into a crisis that is diminished by the 2008 crisis, if not destroyed.
- If 6 trillion, for example, is printed to pay bond holders, this will increase national income everywhere except for the United States, and high income would lead to a high total demand for goods that can be purchased in dollars, and traders, of course, will raise commodity prices.
- The purchasing power of the dollar will decrease a tremendous decrease, and this would represent pressure on the American industry that will have to pay more against raw materials and imported spare parts, and in this way the country will enter into a stagnation and unemployment will increase because of many companies' vision that it is useful to move to China and placesAnother where there is a new demand for its products.
- But the United States will not sink alone.For example, the Chinese will find themselves in trouble, because although there are more dollars in their hands, those dollars will not be equal to the same value that they paid when they bought US debt.
China currently owns 1.17 trillion dollars of American bonds, we suppose it can buy 200 aircraft carriers with this amount, after the inflation that will make the dollar printing step, this amount on a trillion dollars may be able to buy only 50 aircraft carrier.
Therefore, printing more dollars may help the United States pay off its debts, but this will harm the entire global economy.And holders of the American bonds even though they will recover their money, but they will actually get a currency whose value is bound towards the ground, while America itself will enter a dark tunnel that entered it before a country like Zimbabwe, and we will find the Americans going to shop with money bags.
- But the most important point is that the US Treasury will not be able to borrow again.For example, the American budget recorded a deficit of $ 139 billion during last November, and this deficit was funded by selling bonds to investors and governments.
How does the American monetary system work?
- The US Treasury is the one who prints the dollar, but the Federal Reserve is the one who controls the size of the cash supply through its powers that enable it to support the credit cycle and control interest rates and bank reserves from the American currency.
Accordingly, the federal is technically not printing the material dollar, but instead lends banks and maintains financial stability by adjusting the minimum levels of bank reserves and interest rates in order to achieve a balance between the two twin goals: full workers and price stability.
- The entity responsible for printing the dollar, which supervises the currency of the currency is the US Treasury.As of August 2015, there are approximately 1.2 trillion dollars in cash in the United States and abroad.
- When American banks need cash, you request it from the federal reserve, which in turn deposits it electronically in the accounts of these banks after calculating the appropriate interest rate.And banks, for their part, when they have a surplus in cash, are returning it to the federal.
- The American president does not have the authority to print the dollar.Only the Federal Reserve is the one who can order the Department of Minting of the Ministry of Treasury to print more money.
- The federal usually makes one phone call annually to the currency minting, during which he requests to print a certain amount of money.For example, the federal ordered the currency of the currency in July 2015 to print about $ 213 billion.
The federal determines the amount of money that is printed annually in the light of two goals: the first is the amount of damaged banknotes that are no longer valid and need to be replaced.The second is the bank’s expectation of the amount of additional funds that need to be in the trading circle to suit the cash supply with economic growth.
The printed dollars in all of our hands are actually only about 10% of the total cash supply of them, and 90% of them have nothing but electronic on the systems of banks..
Why not print the dollar and provide interest payments on debt?
- There is a big difference between the money that the US government gets through borrowing and that which it prints.Religion is a transformation of the accumulated wealth from one person to another, while the new money is a fortune created from nothingness.And the new money makes the value of the old less, and this will push people to get rid of their cash holdings quickly before losing its value.
Suppose as Trump suggested that the United States can simply print 6 trillion dollars, for example, to pay its bonds..In this way, the US government will provide billions of dollars that it pays annually to serve this debt.This looks good, right?
- But in light of the fact that all the dollar is currently in the world currently approaching 1.2 trillion dollars, the trading volume of the American currency will increase to enter the trading circle of $ 4 for each dollar currently.This scenario is very frightening because this will mean that the dollar will decrease its value to a quarter of what it was before entering the new funds to the debate department.
- In other words, excessive enlargement will occur, the price of anything will suddenly rise four times.At that moment, what everyone will do is to search for a way to get rid of the dollar in any way and exchange it for other currencies that still maintain their value or by buying assets such as cars, real estate and foreign shares.What distinguishes these currencies and assets is that the supply of them is limited and this is what the dollar lacks in this case.
- Global central banks that maintain a large part of their reserves in dollars, they will also rush to get rid of the American currency in order to protect the value of those reserves.
- But some may argue that the federal has entered the circuit of cash trading trillion dollars after the 2008 crisis, and these trillions did not cause inflation to get out of control and did not negatively affect the value of the dollar.
- In fact, there is an important point that many do not realize, which is that these funds are only online and remained within the American banking system.The federal controls the size of the trader from the currency by adjusting the interest rates he pays to banks in exchange for depositing their money.
Do America need to pay its debts?
- Undoubtedly, the United States benefits from the fact that it is a city its currency, unlike Greece, for example, the city in the euro, but not that way.What most of us do not notice while thinking about this point is that the United States is the only country that does not actually need to pay its debts, it only needs to ensure the continued world confidence in the dollar.
- The US dollar is supported by the largest economy in the world, and this is why everyone looks at the debts of the US government as one of the safest investments available.The governments carrying American bonds, for their part, do not want mainly to recover the billions invested in these bonds, they just want to keep the value of their money.
- Once again, the idea of the US government resorting to printing the dollar in order to pay its debts is a myth more than an economic choice, and this is realized by any student in the first year in the economy department that cares about its lesson.