What happen if you print too much money -- Reading Ray Dalio's "How the economic machine works"
Why not government print more money? -- Getting into the real world, I am trying to know how the world's economy runs, but as a newbie, I need time and experience to understand. This is the least thing I can do for me, I summarize from this book called "How the economic machine works" by Ray Dalio, the summarize is mainly about what happen if you print too much money.
- Money circulation creates demand
- Supply co-op with demand, thus generate more productivity by hiring more worker (reducing unemployment rate)
- Supplier realize demand is still increasing, even though productivity is already max, so they invest in machinery, etc.
- Supplier realize demand is even still increasing, making the price of product insanely high
- Workers ask for higher minimum wages
- Inflation is uncontrol able, the price of product increase each day, making people doesn't want to keep cash, they keep buying product each day, live day by day
- Supplier also doesn't want to keep cash, thus keep investing in machinery and expanding
- Both supplier and worker doesn't want to keep cash since it is so volatile, making cash velocity increase maximum
- Bank needs to co-op with the cash circulation of supplier and worker, until they reach maximum capacity not able to print that much money
- Shortage of cash happen, bank cannot liquidify cash, supplier can not borrow and pay the worker anymore, thus business stops
- Supplier reduce transaction frequency since no matter how hard they keep up, it will ended up in bank not able to liquidify cash
- Reduction in transaction so supplier rely more on product rather than cash (no faith in currency anymore)
- Reduction in transaction meaning worker get less hour work, unemployment rate increase
- Recovery needed to create new currency to stabilize
As a learner, it is a common situation to have a wrong understanding, therefore it is great to have readers who have deeper knowledge for economics, and it will be a great pleasure to have you kindly do some corrections.
Book Title: How the economic machine works
Author: Ray Dalio