Effect of government money printing in causing inflation

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I asked ChatGPT the following question:

Q. Why does the government need to borrow money? Why can't it just print it?

A. Great question! Here's the short answer:

The government borrows money instead of just printing it because printing too much money causes inflation, which can damage the economy.

Here's a breakdown of why the government needs to borrow rather than just printing money:

1. Inflation Risk from Printing

When a government prints more money without a matching increase in goods and services, prices go up — this is inflation.

Example: If everyone suddenly has twice as much money, but there's still the same amount of food, gas, and housing, sellers will raise prices.

If printing goes out of control, it leads to hyperinflation — like in Zimbabwe or Venezuela, where money became almost worthless.

2. Borrowing Controls Inflation

When the government borrows, it's getting money from investors or other countries, not creating new money.

This doesn’t increase the total money supply.

It helps fund services (like infrastructure, defense, or social programs) without fueling inflation — at least not directly.

3. Credibility and Trust

If a country just prints money to pay its bills:

Investors lose trust.

Its currency value may fall.

Interest rates on future borrowing could rise sharply.

Borrowing responsibly helps maintain confidence in the economy and value of the currency.

4. Central Banks vs. Government Spending

Central banks (like the U.S. Federal Reserve) control the money supply for monetary policy (e.g., fighting recession).

The government controls fiscal policy (spending and taxes).

The two are connected but not the same — if governments force central banks to print money to cover deficits, it can lead to economic chaos.

In Summary:

The government doesn't just print money because doing so weakens the value of money and hurts the economy. Borrowing is a safer, more stable way to finance spending without triggering inflation.

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The following is about money printing and its effect in causing inflation. It is excerpted from SchiffSovereign.com, James Hickman newsletter, Project “Hijack the Fed” is now in full swing [Podcast], 7/30/2025. James is James Hickman.

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Joe (00:00)

So James, I remember thinking after the global financial crisis and the

stimulus started coming in and Obama was spending all this money. I

remember thinking that was going to cause some serious inflation and it kind

of didn't. So the first time I really experienced any inflation in my life was the

2022 when it hit 9 % after the pandemic and all that pandemic spending. And

then it came back down.

Do you have an idea of when we should start to expect this sustained higher

inflation that we've talked about so much from the Federal Reserve's printing

or other factors?

James (00:38)

Well, first of all, I have to very respectfully disagree with you, my friend. ----

inflation, remember, there's a couple of different types of inflation. And when

you talk about inflation, what you really talk about is sort of retail price

inflation. But there's a lot of different types of inflation. Know, the retail price

inflation is when you go to the grocery store and you see, you you're just

shocked when you see the price of eggs, or you fill up your car and go, my

God, that's insane. And all these different things that we see, that sort of shock

price inflation that we pay in our regular lives. But there is also, there's plenty

of other types of inflation. You can look at it sort of on wholesale prices and a lot

of businesses that have to eat those costs, wage inflation. Another one, one of the

ones that we really saw going back to those early days after the financial crisis, when

they started printing lots and lots and lots of money. And again, I'm gonna say

print money throughout this as we often say, print money.

But when I say print money, they're not actually physically printing money.

The Federal Reserve doesn't actually have control of the printing press. What

they're actually doing is something they call quantitative easing, where

through digital means, they expand the money supply. We call it printing

money because it's just easier to visualize that way, but they're expanding the

money supply. And it creates inflation, invariably creates inflation.

There's a different type of inflation. If you go back to 2012, 2013, 2015, that

whole era, there are different rounds of quantitative means, like QE1, QE2,

operation twist, all sorts of things. And what we saw was a type of inflation

that a lot of people would think, well, that's actually, that doesn't sound so

bad. And that's asset price inflation. Asset price inflation is when the prices of

assets get frankly, ridiculously unsustainably high. And you see it in the

numbers, you see it in the data.

And you also see it in these kind of bizarro anecdotal stories. And so let's

think about the stock market because that's something that a lot of people are

familiar with. You see, during that same period, we saw stock prices rise

rather dramatically. And it wasn't necessarily because earnings were going

through the roof and, you know, companies were so healthy, etc.

It's because simply that people were willing to pay more money for every

dollar of a company's profits, or every dollar of a company's net assets or

every dollar of a company's book value or sales or whatever. Investors

were willing to pay more. And so we could see this in the ratios. We saw a

rise in, for example, the price earnings ratio that people were paying for —

companies or the price to book ratio or these sorts of things. We saw these

things rise rather dramatically, way, way, way above their historic means.

Then we also saw these kind of ridiculous anecdotal stories about people you

know, I mean, we saw this during the during the 2021 boom as well. You

remember the story about the guy paying was like a hundred and fifty thousand

dollars for a banana duct taped to the wall. Supposedly it was artwork. I mean,

there were a lot of those stories even back in, you know, 2014, 2015 as well.

You know, outrageous prices that people were paying for things that were

supposedly art or collectibles, whatever, really started going through the roof.

A lot of people like, it's the same thing you see with real estate prices, real

estate prices rising, median home prices rising. And so some people feel like,

asset price inflation is pretty good. And I would agree, I mean, as somebody

that owns assets, you kind of like asset price inflation because it makes you

think it makes you wealthier, at least on paper.

But one of the things that that does, asset price inflation actually creates a lot

of, in fairness, it does create a lot of social consequences because it was that

asset price inflation boom where you start to see a larger and larger

gap between essentially the haves and the have nots. People that own assets

do really well during asset price inflation because you don't actually have to

do anything. You just sort of sit on your ass and watch your stock portfolio get

more and more inflated without actually having, you don't actually have

to be good at what you're doing. You just sort of sit back and watch your

wealth grow, versus other people.

Joe (04:42)

And this is the same thing with houses as well, why the housing market has

gone crazy and all the boomers are sitting on double the price they bought ?

it for in the 80s or whatever.

James (04:44)

Exactly. Right.

Yeah, multi multi million dollar houses or whatever. Yeah, I mean, people

were buying houses for whatever. I mean, $30,000, you know, whatever back

in the day. And now those houses are worth like $3 million. And yeah, I mean,

there a lot of people going like, hey, come on, get off your ass, Gen Z, you

know, and it's like, dude, it's like, it's different circumstances.

It's different circumstances for sure. So I think, look, I don't think it's a

coincidence that in 2016, you had, if you think back to this period, right, 2016,

you remember, I mean, it seems like ages and ages ago, Obama was

finishing his second term. had a presidential election and who was the most

popular guy in that there was a lot of people running for the Republican

nomination. The most popular guy was Donald Trump.

And it's not hard to sort of understand that now because this is a guy who

was just a wrecking ball who was coming from the outside. For the Democrats,

do you remember who was the most sort of popular guy? Not the person that

won the nomination or stole the nomination for the Democrats, but the guy

that was actually the most popular person in the 2016 Democratic primary, Bernie

Sanders. And if you really distill their message, Donald Trump, and Bernie

Sanders in 2016 were saying exactly the same thing. Their message was

exactly the same. They were both of them saying, you're getting fucked by

the system. And they just, were coming at it from two different perspectives,

but Trump and Sanders were actually saying the same thing. They both, and

that message resonated. That's why they were the most popular people in

that, in that election cycle, because everybody, all the constituents, voters

could feel it.

They're like, something's wrong here because it's again, it's just this massive,

it's mean. The haves and have nots, the, you know, the wealth gap, all these

certain things. It just expanded so much, because you had people that came

into that, who had money. And if you had money, and you invested it, you did

really, really, really well. And if you came into that period, and you didn't have

money to invest, you just fell further and further behind.

And so that big, what they, you know, we say like the hollowing out of the

middle class, that really started in earnest during that period, during, the

Obama years, when for that entire eight year period, the Federal Reserve

was printing massive quantities of money, QE1, QE2, Operation Twist, all this

over and over over again. And that massive quantity of money that went into it

created inflation, but it was a kind of inflation that made certain people

extremely wealthy, or other people that were well off, and propelled them into

becoming wealthy versus other people that didn't have that money just sort of

fell behind.

And so now you have all these people now, so many more people that

have money because what? They had a little bit of money before, they put it

in the stock market, and the Federal Reserve just inflated the value of the

stock market for them. So now they have all this money now. They can say great.

Now I can take my stocks. I don't even have to sell my stocks because there's

so much money in the financial system now. I can borrow from my stock

portfolio and go and buy some real estate now.

And I can afford to pay more for that real estate. So I'm inflating the price of

the real estate. While now if you don't have that money, you don't have that

money in the stock market, you're falling farther and farther behind. Now

you've got to come up with 20 % down payment on a real estate price that is

going higher and higher and higher. I mean, that's what creates a system

where people feel like, man, I'm not getting ahead. I'm just not getting ahead.

That's why Bernie Sanders resonated so much with people because he had

all these people going, not only am I not getting ahead, I'm falling behind.

And Bernie came at it from, of course, the socialist perspective going, we have

got to nationalize everything. And we got to have national health care, national this and

free university and all this kind of stuff. And that resonated. Trump came at it

from a completely different perspective. But his message is the same. He's

like, the middle class is getting hollowed out because we're selling our soul to

China and we're selling our soul to all these foreign countries and we're

hollowing out the middle class. Trump tapped into that as well in 2016. It was

the same message.

And the reason why that message resonated is because it was true, because

you had so many people, tens of millions of people in the middle class that

felt like they were falling behind as a result of the inflation that the

government to this day will pretend did not exist. But it did exist. It was just

asset price inflation, not retail price inflation. The price of eggs didn't go

through the roof in 2013, right? But stocks did. I mean, a lot of assets did.

And that created a wealth gap and that wealth gap drove a lot of social

issues, which are responsible for, I think in large part, the ideological

polarization in the United States. ...

Then they went from four and a half trillion to nine trillion in the pandemic. So

they printed, it was actually a little bit less than four because they tapered

down their balance sheet little bit. So they printed about $5 trillion during the

pandemic.

And Bernie came at it from, course, the socialist perspective going, we got to

nationalize everything. And we got to have national health care, national this and

free university and all this kind of stuff. And that resonated. Trump came at it

from a completely different perspective. But his message is the same. He's

like, the middle class is getting hollowed out because we're selling our soul to

China and we're selling our soul to all these foreign countries and we're

hollowing out the middle class. Trump tapped into that as well in 2016. It was

the same message.

Joe (10:12)

And that was in a shorter time frame than the two or three trillion that they

had done in the wake of 2008.

James (10:18)

Yes, sir. Absolutely right.

So going into the financial crisis, basically when Lehman collapsed in

September 2008, the Fed had $850 billion on its balance sheet and total

assets. It took a couple of years for them to get to $4.5 trillion. So to print that

basically a little bit less than $4 trillion, $3.7 trillion, it took them a couple of

years.

For the Fed to print $5 trillion during the pandemic was in about a year,

maybe year and a half, depending on how you look at it.

So it was a lot of money and it was just a canon of cash just

being shot into the financial system. And that had a major impact. And the

reason that became inflationary from a retail price perspective, it's not hard. It

doesn't take a rocket scientist. You don't need a PhD in economics to understand this.

In fact, it's probably better that you not have a PhD in economics. So you

don't have those blinders on.

The reality is when you think about the pandemic. What do they do? They

locked everybody down. They said, stay at home, cower in fear in your

basement. So people stopped going to work. So the production of goods and

services in the United States, i.e. the supply of goods and services, went

down. And then they went and started handing out free money to anybody.

Here's your stimulus check. Here's your other stimulus check. Here's the

bailout fund. Here's the PPP. We just kept inventing new ways to give people

free money.

So now people are awash with free money. Obviously they're going to

spend it. So demand goes up and yet supply is down because people are

locked in their basement. not going to work. Lower supply, increased

demand. Duh. Like any high school economic student is going to know that's

going to result in an increase in prices. So we saw an increase in that.

Retail price inflation.

Joe (12:07)

So actually next time, as long as they don't shut down the economy again,

could we expect just an increase in the inflation as related to assets and

homes and perhaps not a retail price inflation?

James (12:19)

I don't think so. I don't think so. I think you're probably going to see a pretty

healthy mix of both. And the reason why is because the volume of money that

we're talking about is just so substantial. In the past, the Fed printed $3.7

trillion during the 2008-2009 financial crisis. And it took them a couple of

years to do that. During the pandemic, they printed $5 trillion in about, again,

let's say 18 months.

What we're talking about now, you know, we kind of label this, we call it

crisis 2033. And the reason why, why 2033? Well, because 2033 is the year

that social security's major trust funds essentially run out of money. They

become in social security parlance, they say fully depleted. And we talked

about this before.

Ever since social security was created back in the Roosevelt era, essentially,

there's been people that pay into the system and there've been beneficiaries

that take money out of the system. And for years, for decades, there were

more people paying into the system than beneficiaries taking money out of

the system. So that surplus was essentially put into a trust fund and that trust

fund over time just built up like a savings account essentially. And that

savings account became literally a couple of trillion dollars over a period of

decades. Well, some years ago now, not that long ago, but a few years back,

it reversed.

Now there are more people taking money out of the system than were people

paying into the system. So now the program is running at an annual deficit.

So what do you do when you're running at an annual deficit? You start bleeding

down your savings little by little. And the point is that by 2033, Social Security

trustees are saying, all this like vast pool of savings that we built up, it's going

to be completely gone, fully depleted. And they're circling a date on the

calendar in early 2033 when that's going to happen. And most likely, it's going

to be before that because every year that goes by, they tend to like revise the

estimates. So my guess is that next year, the next couple of years, they will probably

say, oh, now it's 2032. Now it's 2031. So it could be before 2033. But for now, let's

say 2033.

This is, oh, by the way, also at that time in 2033, the national debt the United

States is going to be north of $50 trillion. It's $36 trillion today going on $37

trillion. It's going to be $50 trillion in eight years. This is not my math. This is

the government's own forecast. And it's probably going to be a lot higher than

that because the forecasts are always wrong. Right. And so who's going to

give them the money? Somebody's going to have to keep loaning the money

year after year. It's like, oh, you got a $2 trillion deficit, $3 trillion deficit. Now

you got a couple of trillion dollars to bail out social security.

So at a certain point, they're going to have to find more and more

lenders. The problem for the federal government, for the treasury

department, is their lenders are actually getting fewer. And we talked about

this a lot is because foreign governments and central banks, foreign investors

in general are backing away from treasuries. They're looking at the fiscal

trajectory of the U S government and saying, no, I'm done. I don't want to,

this looks like a train wreck in slow motion. Top of that, you guys are

constantly wagging your fingers at us.

You're threatening us with tariffs. You're threatening us with sanctions. You're

threatening all this crazy stuff. I don't want to deal with it anymore. Why, you

know, if I'm China, you know, we talked about this before. Like, I mean, it

wasn't that long ago. I mean China had like $1.2, $1.3 trillion worth of U.S.

government bonds. Now they're down to like $700 some odd billion.

I mean, their treasury holdings have declined dramatically just in a couple of

years because the Chinese see this and go, I don't want to be part of this

fiscal train wreck. I don't want to be part of these consequences. I don't want

you to freeze my account. I don’t want you to do any of these things. And so you

see a lot of governments that are backing away from treasuries. So if foreign

governments and central banks, which traditionally have been one of the

biggest lenders to the US government, they're backing away, where's the

US government going to get the money from? From the Fed.

The Fed's going to have to basically print that money, more rounds of

quantitative easing. And so this is what we're talking about. This, you know — an

answer to your question of maybe next time it'll just be asset price inflation

and not retail price inflation. Well, I would caution you on that. Number one is

that asset price inflation creates a lot of bizarre consequences — that, you know,

it's hard to even anticipate and contemplate what those are, but we're living

through that.

The social discord and the ideological issues, all that stuff is a straight line

from the asset price inflation post-GFC to where we are today. But more

importantly, it's the quantity that the Federal Reserve is going to have to print

because they're not going to be able to rely on foreigners. After the GFC, the

Fed was able to print lots of money and they could rely on foreigners to buy

all these government bonds. During the pandemic, the Fed was able to print

trillions of dollars. And who was buying all these government bonds? It was

China, it was Japan, it was India. It was all these places that were buying US

government bonds during the pandemic.

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I asked ChatGPT the following question:

Q. What things are included in the consumer price index?

A. The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by consumers for a basket of goods and services. This basket is designed to reflect the spending habits of a typical urban consumer and includes a wide range of items grouped into several major categories.

Here are the main categories and examples of what’s included:

1. Food and Beverages

● Groceries (meats, dairy, fruits, vegetables, cereals, etc.)

● Restaurant meals (full-service, fast food, takeout)

● Non-alcoholic beverages

● Alcoholic beverages (if purchased for home use)

2. Housing

● Rent of primary residence

● Owners’ equivalent rent (an estimate of what homeowners would pay to rent their homes)

● Utilities (electricity, gas, water, sewer)

● Household furnishings and operations (furniture, appliances, cleaning supplies)

3. Transportation

● New and used vehicles

● Gasoline and motor oil

● Public transportation (airline fares, train/bus fares)

● Vehicle maintenance and insurance

4. Apparel

● Men’s, women’s, and children’s clothing

● Footwear

● Accessories (like jewelry and watches)

5. Medical Care

● Medical services (doctor visits, dental services, hospital services)

● Prescription drugs

● Medical supplies and equipment

6. Education and Communication

● Tuition and fees (elementary through college)

● Textbooks and school supplies

● Telecommunication services (cell phone service, internet)

7. Recreation

● Electronics (TVs, computers)

● Recreational services (movie tickets, sports events)

● Pets and pet products

● Toys and hobbies

8. Other Goods and Services

● Personal care (haircuts, toiletries)

● Tobacco products

● Bank fees, financial services

● Funeral expenses

The CPI is updated monthly by the U.S. Bureau of Labor Statistics (BLS), which collects data from thousands of retail and service establishments. Notably, it does not include income taxes, investment items (like stocks), or social security contributions.

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We note that the CPI does not include investment items like stocks and bonds, investment real estate (such as office buildings, farmland, and timberland), precious metals such as gold and silver, and art objects purchased for investment.

James Hickman points out that there can be inflation in things not included in the CPI — such as stocks and bonds, precious metals, and investment real estate. This is asset price inflation. Inflation in such investments are likely to be welcomed by the investor. Thus inflation from printing money may help the rich by increasing the value of his investments while it hurts the poor.

James Hickman believes that the soaring stock market that we have seen in the last 15 years is due to all of the sessions of money printing.

What causes inflation? What causes the price of something to go up? Increased costs of production is one thing. Increased demand with limited supply is another. When people with money start worrying about future inflation, what do they do? They start buying gold, silver, land, etc. creating an increase in demand for these things and causing the prices of these things to go up.

People assert that money printing causes inflation. When people say that some action will cause some consequence I want to see some chain of reasoning that proves it. Simple assertions without proof don’t impress me. People make false assertions all the time. I don’t know of a chain of logic that proves that money printing will necessarily cause inflation. I don’t see why printing money will cause the price of eggs to go up. Or why it will cause the price of automobiles or houses to go up.

Right after Covid we had a nasty bout of 9% inflation. But all of the damage done to supply chains and businesses of all kinds all over the world by the drastic measures taken for Covid can account for that. Non-functioning supply chains caused shortages of goods and that causes price increases. I am not sure that the money printing had anything to do with it.

See

What causes inflation?

On inflation, the rate of inflation, and the erosion of the dollar

Gold as a hedge against inflation

The Law of Supply and Demand

The stock market

30 July 2025