Over-reliance of government on money creation
Other Names: Dependence of governments on printing money
Claim: Governments can choose to finance fiscal deficits by creating money, that is by printing and spending currency. By issuing currency, governments are able to claim real resources; this claim is known as seignorage. When the rate of money creation exceeds the growth in demand for money, inflation can result. And that inflation itself worsens the deficits, because expenditures keep pace with rising prices while revenues do not. As a result still more money creation is called for, further worsening the inflationary spiral.
Problem Type: F: Fuzzy exceptional problems
Date of last update 01.01.2000 – 00:00 CET