Share this with your friends when they ask, “why don’t we just print more money?“
Here’s a basic explanation of why printing a bunch of money and giving it away to people doesn’t work:
In short prices will go up after a drastic increase in the money supply because:
- If people have more money, they’ll divert some of that money to spending. Retailers will be forced to raise prices, or run out of product.
- Retailers who run out of product will try to replenish it. Producers face the same dilemma of retailers that they will either have to raise prices, or face shortages because they do not have the capacity to create extra product and they cannot find labor at rates which are low enough to justify the extra production.
http://economics.about.com/cs/money/a/print_money.htm
This has also been done many times throughout history, with predictable results.
Here is a brief overview of the recent case of hyperinflation in Zimbabwe:
The peak month of hyperinflation occurred in mid-November 2008 with a rate estimated at 79,600,000,000% per month. $1 US was equivalent to $2,621,984,228 Zimbabwe Dollars.
At one point, a loaf of bread was Z$550 million in the regular market, when bread was even available; apart from a trip to another country, the black market was the only option for almost all goods, and bread might cost Z$10 billion.