Why is printing money a problem?

Bonnie Kristian posted a link, underneath this post, from a NY Times article in which the Fed revealed that it would be printing “as much money as it needs to.”

But why is this a bad idea?

In a fiat currency system, there is nothing of intrinsic value tied to each dollar.  Since the government has no unique sources of production, when the FED prints money, the value of the entire money pool stays the same.  Therefore, the value of each dollar will shrink.  This is called inflation.

Ben Bernanke displayed his ignorance earlier this year (if anyone can find that video, that would great!) by stating inflation wasn’t a problem, because wages will rise with the cost of living.  While this may or may not be true for people with adjustable salaries, it is a huge problem for people living on a fixed income.

Lets say you are a retired person living on a pension plan with a fixed income.  Most probably, that money is in a bank or low risk investment plan collecting some interest.  However, if the rate of inflation is growing faster than the interest rate on your investments, your savings will decrease in value over time.  So, while people with salaries may be ok, your purchasing power will decrease and, with that, your standard of living.

Unfortunately, it is most often the poor and elderly who inflation affects in this way so printing money may (or may not) work for Wall Street (more on this later) it penalizesthe people who can least likely afford it.

This is what Ron Paul calls the inflation tax and is one of the problems with printing money during a recession.

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