🇺🇸 The U.S. has a money printing machine; other countries can also print money, so why don't they print their own money and instead go borrow from other countries to the point of being in debt?
If printing money could solve the problem, then I think Mugabe, a long-time friend of the Vietnamese people who won the Nobel Prize in Economics, would have made Zimbabwe the most powerful country in the world long ago. Only because Mugabe carelessly printed money, from 1 Zimbabwe dollar buying 1 loaf of bread, after ten years, Zimbabweans wanted to buy 1 loaf of bread and had to carry a truckload of money.
Why do we have to borrow money from other countries?
- The money borrowed here is not ordinary money, but "U.S. dollars."
- Why borrow dollars?
- Because we cannot print U.S. dollars!
I am just joking.
The U.S. dollar is a strong international currency; it is considered "international currency." This means that if you have U.S. dollars in your wallet, you can spend them in most countries.
Let me tell you a story.
After World War II, the world suddenly became flat like a piece of paper. Along with the rapid development of society, the earth has become a large "village."
In this village, the family of the man named Russian specialized in producing sickles as tools, Mr. American's family specialized in producing BCS for family planning, Mr. Chinese mainly sewed clothes, Mr. German manufactured auto parts, Ms. French specialized in producing perfumes, and Ms. Vietnamese primarily grew rice.
Countries are like every family.
Every family wants to have a good life, so they must buy goods from other families; this buying is what economists call "imports."
If you want to buy something from someone else, you need to use a medium to make the purchase; what is that medium? The best answer is gold. But gold is a very rare metal. If you just want to buy a BCS for tonight, it would be too difficult to give a piece of gold the size of a pinhead to Mr. American's family. On the other hand, gold is also very heavy. For example, one morning you want to go to Mr. American's house to buy a luxury car, then you drive over to Mr. Chinese's to buy a dozen branded outfits, then to Mr. Russian to buy many sickles, then to Ms. French for several bottles of perfume to give to your wife and lover, and finally to Ms. Vietnamese to buy some rice. At that time, you would have to carry gold to make the payments. But gold is too heavy; the weight of gold could crush you, so it would be very inconvenient. Who knows, while carrying gold, you might drop it and end up with a broken leg that requires hospitalization for surgery.
Suppose you take some paper, draw a portrait of your ancestor on it, add some beautiful details, and then write on it that this paper is worth this much gold, and that paper is worth that much gold; if you bring those papers to families to buy goods, no one will agree because they are just worthless scraps of paper.
But for the man named American, who was both the strongest, most handsome, and richest in the village, it was completely different. He chose a beautiful day to announce: “My dear friends! From now on, you can use the money I print to spend, and I call this money U.S. dollars with the image of my ancestor printed on it. Don’t worry, all the money I print is related to gold!”
Since then, the purchasing of goods between families, also known as importing goods, has been conducted using U.S. dollars by all countries.
If we did not have U.S. dollars, could we print money ourselves and use that money to buy goods?
The answer is no.
Because the dollar was supported by the strongest household in the village, which was the family of the man named American, everyone trusted this man. Therefore, everyone only accepted dollars and not other currencies. In fact, there were still other currencies like Euro, RMB, etc., but they were only spent within each clan that accepted them; economists call that a regional common currency.
One day, Ms. Vietnamese used her accumulated dollars to buy a car. The dollars were gone, but she needed to buy some sickles. So what should she do? She could buy on credit from Mr. Russian or borrow money, thus becoming a debtor.
In other words, unless a "family" has no connection with other "families" and develops independently, whether they have U.S. dollars or not is not important, and they do not need to borrow money.
However, there are certain objective conditions that prevent some families from living independently. For example, Mr. German only produces cars but does not grow rice; if he does not buy rice from Ms. Vietnamese or through other families, he will have no food to eat, and his wife and children will starve looking at cars. Similarly, if Ms. French does not import clothes from Mr. Chinese, she will surely have to go naked; other families will no longer consider her human, as only animals do not wear clothes. If Mr. German wants to import food, he must use dollars; if Ms. French wants to import clothes, she must also use dollars. If Mr. German and Ms. French do not have dollars at home, they must borrow dollars or buy on credit converted to dollars, as they cannot print their own dollars because Mr. American does not allow his family to print money.
The "value" I mentioned earlier refers to a country. You have seen very clearly that if you do not borrow money, your country will face shortages, and many people will die.
A country can print money, but when buying goods from other countries, the country selling the goods will not recognize the self-printed money, so families without dollars can only borrow U.S. dollars.
If a country has many export goods, that country will earn many dollars; this is called "foreign currency earned from exports." If that country has people working abroad, they can send dollars back home, which is also a way for the country to earn foreign currency. The amount of U.S. dollars a country has is called "U.S. dollar foreign exchange reserves."
When examining the financial situation of a country, "foreign reserves in U.S. dollars" is a very important figure, usually alongside "national currency reserves" of each country.
For instance, during the 1997 financial crisis in Hong Kong, thanks to its enormous foreign exchange reserves, China was able to overcome the crisis, and the international financial system did not collapse.
Currently, China holds the highest foreign exchange reserves with $3.5 trillion, Japan is second with $1.4 trillion, and Switzerland is third with $1 trillion.
Every family can print money; can they print a large amount of money to use in another country?
Any modern country has the right to print money, and the authority for this is the "central bank."
Most central banks are controlled by their governments, but only a few are not. For example, the Federal Reserve is the central bank of the United States, but the U.S. government cannot control it. One of the reasons Kennedy was assassinated was to regain the right to print money, meaning the U.S. government controls the U.S. central bank. Trump also wanted to regain the power to print money, which is why he was determined to release the assassination files of Kennedy, which were initially planned to be 80,000 pages long. But surprisingly, the evidence of Kennedy's assassination that Trump obtained totaled 11.5 million pages, stretching exactly 1 km, making it impossible for Trump to read them all in his lifetime, so he gave up.
A stable country can freely print its own currency, but is there a limit to that? The answer is definitely no.
Let me continue the story.
In that village, Mr. German's family produced 3 cars, Mr. Russian produced 10 sickles, Mr. Chinese produced 30 outfits, Ms. French produced 4 perfume bottles, and Ms. Vietnamese grew 1 ton of rice. The whole village had 100,000 bills of 1 dollar being used.
Mr. American is the village chief and has the power to print money.
To increase his personal wealth, Mr. American secretly printed an additional 100,000 bills. Initially, Mr. American kept the newly printed $100,000 at home and never used it, so nothing happened in the village.
But one day, Mr. American told five people in the village that after working hours each day, they could come help him build a house, and for each time they came, he would give them $1,000. All five happily came to help and received money. Three weeks later, Mr. American had distributed all $100,000, so he told them not to come anymore.
Because of earning a large amount of money, Ms. Vietnamese began to think about beautifying herself and bought 10 outfits, but the accumulated money from before and the money Mr. American just distributed was still plentiful, so she decided to buy a car. When she went to Mr. German's house, the car was sold; there was only one left, and Mr. Chinese had just come to inquire about buying it, so Mr. German raised the price of that car twice.
As a result, the goods in the village doubled in price.
As a result, the money in the pockets of the villagers depreciated, prices became extremely high, and the villagers faced difficulties in making a living.
The village chief Mr. American looked at everyone in the village and asked, "Have prices gone up?" Everyone replied that prices were too high, they were not shopping anymore because they had no money. Seeing that everyone had no money, Mr. American went back to continue printing money; each day he printed more and distributed it to everyone. He thought that when people had more money, they would be able to shop more easily.
Unexpectedly, the continuously printed money lost value, prices skyrocketed several times, then multiplied by dozens, even hundreds of times compared to before, leading to severe inflation.
The story of Zimbabwe is an example.
When talking about Zimbabwe's currency, which is often likened to flowing like a flood, we must first mention a longtime friend of the Vietnamese people, named Mugabe.
Mugabe was a man who loved reading.
After completing many degrees in South Africa, Tanzania, Zambia, and many other countries, Mugabe returned to become a high school teacher. In 1963, he joined and founded the Zimbabwe African National Union (ZANU), which defeated ZAPU in the 1960s and 1970s and became the ruling party after Zimbabwe gained independence in 1980.
From 1963 to 1975, Mugabe was an elite son of the Zimbabwean nation and was kept by the British colonial government. During this time, he took the opportunity to read many books, and he also obtained a master's degree in law and public administration from two British universities. I don't remember the specific university, those interested can find out, but in short, Mugabe was very eager to learn. An interesting thing I discovered is that those who often speak out against the government or destroy the country often study economics or public administration in the West; the U.S. and the West mainly train in these two fields and social sciences; they do not train countries that do not share the same ideology in technical sciences.
In 1980, Zimbabwe gained independence and Mugabe became the Prime Minister and held power. In 1987, the cabinet system transitioned to a presidential system, and Mugabe became president until he was forced to resign in 2017 at the age of 93. Throughout those 37 years, Mugabe held absolute power; the "book-loving" president turned Zimbabwe's currency into a trash legend.
Zimbabwe in the 1980s was a country with a diverse economic structure, with agricultural production accounting for 12.2% of GDP, a high level of industrialization, making it a typical industrialized nation. It can be said that Zimbabwe was very prosperous; the number of skyscrapers was the envy of Beijing and Shanghai, and Southeast Asian countries could only look on longingly. At that time, people in Asia were choosing countries to settle in; if they could not go to the U.S. or Europe, they would hastily choose Zimbabwe.
The turning point began at the end of 1997 when veterans took to the streets to protest, demanding that Mugabe fulfill the post-war subsidies he promised. At that time, the central bank of Zimbabwe was struggling with a large debt. To pay the 50,000 Zimbabwe dollars subsidy for each veteran, Mugabe, who had a master's degree in law and public administration from the UK, believed that the issue could be easily resolved by printing money.
Immediately after the veterans were awarded money, prices began to rise; the more money printed, the less money the villagers had to buy goods. Mugabe believed that printing money, printing more money was obvious; the more money printed, the poorer the country became.
What should Zimbabwe do when its people are poor?
The only answer at that time was to continue printing money; printing money would make the people and the government feel richer, but the money people used to buy a pair of pants in the morning would not be enough to buy a pair of shorts by the afternoon.
In 1980, the exchange rate was 1 U.S. dollar could only be exchanged for 0.678 Zimbabwe dollars. In 1997, the exchange rate was 1 U.S. dollar could only be exchanged for 10 Zimbabwe dollars. In June 2002, 1 U.S. dollar could be exchanged for 1,000 Zimbabwe dollars. By 2006, 1 U.S. dollar could be exchanged for 500,000 Zimbabwe dollars. The inflation rate in Zimbabwe was 55% in 2000, 133% in 2004, 586% in 2005, and 220,000% in the summer of 2008. By 2009, the inflation figure had become impossible to count the zeros behind. After Mugabe was overthrown, the inflation figure released by the new government was 5 trillion percent. In 2009, the fourth-generation Zimbabwe dollar was exchanged for 1 trillion third-generation Zimbabwe dollars; in 2008, the third-generation Zimbabwe dollar was exchanged for 10 billion second-generation Zimbabwe dollars; and in 2006, the second-generation Zimbabwe dollar was exchanged for 1,000 first-generation Zimbabwe dollars. To make a rough calculation, if you had one Zimbabwe dollar in 2009, you could exchange it for 1 quintillion dollars in 2006. In Zimbabwe, to buy a loaf of bread, people had to pull a cart to carry money.
So can every country print a lot of money?
First of all, we must understand that the nature of money is also a type of commodity. In primitive times, some tribes used shells as currency. Later, people used precious metals like gold and silver as currency. Then paper money was born. Since it is backed by national credit, it has value and can still be considered a type of commodity. As a means of storage, a price scale, and a means of circulation, it is widely recognized by everyone and thus is called currency.
Since money can be considered a type of commodity, it must face the issue of its price being determined by the market.
Money also has value. For example, 1 dollar in the U.S. can buy 1 egg, so anyone in the U.S. can say that an American egg is priced at 1 dollar. Clearly, 1 dollar in Vietnam can buy 5 eggs, which is worth more than 1 dollar in the U.S. buying 1 egg. This is exactly the question of "does money have value?"
What factors determine currency value?
The short answer is, like all other commodities, it is determined by supply and demand.
If Ms. Vietnamese raises chickens for eggs and is the only supplier of eggs for the entire village, she must calculate and decide the appropriate number of eggs to provide each year. If she supplies too few eggs, prices will rise, and no one will buy, leading to low revenue. If there are too many eggs, buyers will not finish, egg prices will be too low, and she cannot sell them.
The same principle applies to printing money.
When the money supply is too much, currency value decreases. When the money supply is too little, currency value increases. The issue of currency and eggs is slightly different in that, as an entrepreneur, Ms. Vietnamese's ultimate goal is to make money, so if she monopolizes the egg supply market, she has a reason to raise egg prices by raising fewer hens to earn more profit with less effort. However, the goal of issuing currency as a commodity is not to "make money" but to maintain the normal operation of the economic system. Therefore, for a country, the most beneficial money supply is essentially the equilibrium point achieved between the supply and demand for money, which is calculated according to formulas in finance textbooks, so I won't mention it again.
Can the U.S. print a large amount of money indefinitely?
There is no doubt that the United States is the only country in the world that can print more money. Why is that? Because U.S. paper money is used globally, so the consequences of their excessive money issuance will be borne by the whole world.
The United States prints and distributes money in three steps.
- The first step is for the Federal Reserve to print money.
- The second step is to spend money through defense spending, public spending, etc. As a result, some American import-export companies, large multinational corporations, and multinational military companies will profit. These companies will conduct global procurement and pay other countries in U.S. dollars.
- The third step is that foreign organizations receiving U.S. dollars will spend this money on purchases abroad, thus forming the flow of U.S. dollars.
Americans call this "quantitative easing". With this trick, Americans often print more money and let the world pay, wealth flows back to the United States.
So, can the United States print money in unlimited quantities? Of course not. Because if money is printed recklessly like that, everything will become very complicated. The logic of the problem I mentioned above. If the United States prints too much money, the dollar will quickly depreciate and even cause global inflation; in this case, the United States will also face trouble.
The United States only prints money within the limits of inflation that the world can accept.
That is why, although the United States holds the power to print money for the whole world to use, this country is the most indebted, and the policy of "reciprocity" will come with buying the "century debt" of the United States.
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