Can’t We Just Print Money Instead of Borrowing It?

When people hear that the US government has borrowed trillions of dollars, some might ask: Why borrow at all? Why not just print the money? After all, the US controls its own currency. So why go through the trouble of selling Treasury bonds and paying interest when the US government could just print what it wants to spend?

Let’s break it down.

In the US, only the Federal Reserve is authorized to create money. So, to start, let’s distinguish between printing money to fund government spending and what the Federal Reserve normally does.

When people talk about “printing money,” they usually mean the government creating new dollars to directly pay for its expenses-like covering deficits without borrowing. The Fed, on the other hand, manages the money supply to keep inflation and employment stable. The Fed may create money to buy government bonds on the secondary market, as part of its monetary policy. But that’s different from creating money at the direction of Congress to fund spending. In fact, direct money creation to fund government deficits is prohibited under US law.

Now, let’s compare what happens when the government borrows versus if it were to print money to finance its spending.

When the US government borrows, it issues Treasury bonds and promises to pay them back with interest. People who buy these bonds are lending the government money in exchange for a safe, low-risk return. This is a standard way to finance budget deficits.

But what if the government just created the money to pay for the excess spending instead of borrowing? In the short run, that would indeed pay the bills. But printing money will also increase the total amount of money in circulation, which will create higher inflation.

When there’s more money chasing the same amount of goods and services, prices rise. That reduces the purchasing power of money and can create real hardship-especially for people with fixed incomes. In effect, printing money to pay back debt is like a hidden tax. The government isn’t taking dollars directly from people-it’s reducing the value of the dollars they already have.

And if people start expecting that the government will print money to cover its spending, inflation expectations can spiral. Businesses raise prices in anticipation, workers demand higher wages, and inflation becomes self-reinforcing and can reach dramatic levels.

We’ve seen this happen in countries like Zimbabwe, Venezuela, and historically in Germany. Once trust in the value of a currency is lost, it’s very hard to get back.

This is why most economists and policymakers believe printing money should be used only in exceptional circumstances-if at all.

Borrowing, while not free, gives the government more flexibility. It doesn’t immediately increase the money supply, and it helps preserve confidence in the currency. It also creates a structure of discipline: investors have to be willing to buy the debt, and interest rates send signals about risk and sustainability.

So while printing money may seem like an easy way out of debt, it would still amount to a tax and the economic consequences would likely be severe and long-lasting. As is often the case, there’s no such thing as a free lunch.

Originally published at https://mytwocentsandcounting.substack.com.