| Printing money by itself does not cause inflation. You can quibble on what "causing inflation is", but: - Money is a lien on production of goods and services, e.g., "real wealth" (as opposed to "financial wealth"). - Increasing the amount of money in circulation means that each unit can demand a smaller portion of those goods and services. - Whether or not inflation is experienced depends on whether or not the money supply, or real wealth, are increasing faster. However we can absolutely say that increasing the money supply will increase inflation over not increasing it. - Modulo various other factors: is money being destroyed elsewhere in the system (bonfires of Franklins, asset bubble crash, loan defaults, negative real reaturn on business investment)? In that case, net inflation may still be negative, but once again producing more money increases the relative rate of inflation, even if that only means you're deflating more slowly. - The other principle question is how the new monies are introduced to the economy, which is a matter of some debate, for both economic effectiveness and equity. Many have argued that the TARP bailouts were distortionary in that they provided additional financial wealth to banks and other institutions, many of which were directly implicated in the crisis precipitating the bailouts, creating massive perverse incentives. Alternatives would be allocating the funds evenly throughout the economy -- "throwing money out of helicopters" (where, to avoid the obtuse objection of one thick-headed oaf I was discussing this with recently, we make clear that there are lots of helicopters flying high and the money is distributed evenly through the population), or through a lottery (compulsory, you're entered no matter what) such that the distribution is "clumpy" but random -- present wealth or status plays no role in elevating or decreasing your chance of receipt. And how the monies are destributed has some role in how pricing signals propogate. But in general: more money == higher inflation. Again, even if that means a lower rate of deflation. |