To Repeat: There's No Such Thing as "Printing Money" 

Confusion continues surrounding federal spending. I cannot blame the public since there is a constant barrage of the term "printing money" ever since Trump said it. Previously, we discussed some key issues surrounding printing money:

1. Printing Money relates to the gold standard.

2. There were three ways a government could spend during the gold standard:

- Taxes
- Borrowing
- Print Money

3. Printing Money doesn't occur in a free-floating, non-convertible fiat regime. (The US, UK, Canada, Australia, Japan, et al.)

4. Printing cash is a separate issue entirely from government funding operations. 

For the benefit of those who are still confused, I'll explain the concept of printing money in a different way. Let us suppose that you are playing the game Monopoly. Let us also assume that though you own properties, your income from rent isn't enough to fund your spending desires to buy more properties. So, you simply go grab some paper and scissors, cut out some rectangles and write any dollar amount that you like on the paper and everyone else agrees to accept them. Essentially, you've just printed money to fund your spending. Of course, this explanation is very simplistic, but we need to get you thinking in the right direction. 

Now, let's review.

During the gold standard, printing money was a similar operation. The US Government maintained gold reserves which it had to defend. Back then, the dollar was convertible, meaning that the US Government agreed to convert your dollars to a certain amount of gold. If the US Government wished to spend beyond what it took in from taxation and borrowing, it would print money. But printing money was a tad bit dangerous. Should people bring these dollars to the US Government and demand gold in exchange, the US Government had to do it and so, the gold reserves could drop substantially. In fact, during the great depression era, such a thing occurred. It is known as a "speculative currency attack". Anyway, back to the point. 

So, that is the reason why the US Government taxed and borrowed - to defend its gold reserves. If it taxed, then it could collect the dollars already in existence, spend or destroy them issuing replacements and in doing so, defend its gold reserves. International trade could drain the government's gold reserves as well. 

Nevertheless, it is important for you to understand that the US dollar itself, as a currency, was and still is always a product of the US Government. Even during the gold standard the US Government was not "naturally" limited on its supply of US dollars. It could have printed money if it wanted to, but because it voluntarily chose to use the gold standard, it chose to voluntarily constrain itself. In other words, the gold standard is an UNNECESSARY artificial constraint that is self-imposed. It is a choice. 

Since 1971, the US dollar has been on a free-floating, non-convertible fiat regime. What this means is that the US dollar floats freely on an exchange, its exchange rate is not fixed. It is non-convertible, meaning that the US Government will not agree to convert your US dollars to anything but US dollars. If you take $10 to the US Treasury, the treasury will give you two five's, ten ones, or any amount equalling $10. Fiat means "at will", hence the US Government issues currency at will when it wishes to spend. Today, there is absolutely nothing restraining the federal government from spending, except for inflation.

When the federal government spends, it does so by keystrokes. If it wishes to spend $5,000, it goes into a bank account, types the number 5,000 and thus $5,000 now exists. That is fiat. Taxation is the reverse of the spending operation. When it taxes $1,000, the federal government goes into a bank account and subtracts the number 1,000 from that bank account and the $1,000 is destroyed; removed forever from the banking system and the US economy. At no point does the federal government require revenue to spend, because under a free-floating, non-convertible fiat regime, the supply of US dollars available to the US Government always equals infinity. All spending occurs prior to any taxation. The federal government cannot save US dollars to spend later. The federal government does not borrow to spend. All spending is the issuance of US dollars at will. So, with today's US dollar, it is impossible for the US Government to print money to fund spending. All US dollars come from the federal government and it is through deficit spending that the US Government adds more US dollars to the economy when it is necessary to keep the economy "healthy". Lastly, the inflation question.

When the federal government runs a deficit, it is issuing more US dollars than it is destroying in taxation. What is left over remains in the non-government sector for private entities to use. The claim that you hear from politicians, teachers and the media that government deficits are inflationary is false. The act of simply running a federal deficit isn't inflationary. The truth is that deficits that are too large can be inflationary. How do we know that a deficit is too large? 

Unemployment.

Another aspect of federal deficits is that if the deficit is too small then unemployment occurs. For a federal deficit to be inflationary, barring war, or some natural disaster, we have to first achieve a situation of full employment. When we've reached the point where the economy is at max output - that means where all available labor resources are committed to production - any excess federal spending will become inflationary. So, a persistent excess spending that exceeds the real ability of the economy to produce goods and services will become inflationary. This type of inflation is called "demand-pull inflation".

Therefore, just because the federal government is running a deficit does not mean that it will be inflationary. We have to look at what is going on prior to that spending. Right now, the actual unemployment rate is around 9.7%. There are plenty of people who are willing and able to work, but cannot find jobs and we also know that if the deficit is too low, unemployment results. So, there is plenty of room to increase output and the federal deficit. As federal deficits inject more dollars into the economy, aggregate demand increases, business hires more to meet that demand and so, those who were unemployed can then find work. Again, we must reach actual full employment, where all who are willing and able to work can find work, before we need to worry about federal deficits being inflationary.

In summary, when people say "printing money" those people do not know what they are talking about. They are literally talking about the United States in the year 1925 and they don't realize it. 

This is 2016. The US dollar is fiat. The US Government spends US dollars into existence with keystrokes.

Printing money does not exist today.