Reply to post: Re: Oh puhleeze

Hey, folks. Meet the economics 'genius' behind Jeremy Corbyn

I ain't Spartacus Gold badge

Re: Oh puhleeze

A bit too ranty, and very much too ignorant of basic economics.

Inflation is too much money, seeking too few goods. That pushes the price up, as you've only got so many goods to go round - however much money you have. Hence the spectacle of billion mark or Zimbabwe dollar notes.

If the government sells bonds, then someone has to buy those bonds. With money. They give that money to the government in exchange for the bond. So the government can spend that money. So the money supply has remained the same.

If the government has printed money, and therefore not sold a corresponding bond, then the money supply has grown. Thus there is now more money around, so all things being equal that will result in the price of goods and/or labour going up.

Obviously if you're way below full employment, then wages need not rise. The government of Greece say could easily print a few billion (if only they were allowed to) and pay some of those unemployed people to do something useful. That would grow the economy, as they'd then have cash to spend on other people's goods and services - and yet with unemployment at 25% - you need to employ a lot of people before you start pushing wages up.

Actually it would cause some inflation, but as Greece currently has -2% inflation, that would actually be a good thing for their economy.

For Britain, which has much lower unemployment and is now getting some welcome small wage inflation, printing would be inflationary. Inflation is low, we might even get away with bit anyway. But the hit to the credibility of our government might be disproportionately large, such that inflation expectations suddenly rise, leading to an inflationary devaluation in the currency - and the requirement to have higher interest rates or inflation than otherwise needed.

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