Cooleasy:

You are getting something wrong here o. The printed local currency was first of all converted into foreign exchange; it was the foreign exchange that was paid to service the foreign debt while the printed local currency remains within the country, to flood the market thereby making the currency to lose its value.

Consider the case of the United States. Let’s suppose the United States decides to increase the money supply by mailing every man, woman, and child an envelope full of money. What would people do with that money? Some of that money will be saved, some might go toward paying off debt like mortgages and credit cards, but most of it will be spent. I know the first thing I’d do is go down to Walmart and buy an Xbox or PlayStation 2 (if you have an opinion of which I should buy e-mail me by using the feedback form).

I’m not going to be the only one who runs out to buy an Xbox. This presents a problem for Walmart. Do they keep their prices the same and not have enough Xboxes to sell to everyone who wants one, or do they raise their prices?

The obvious decision would be to raise their prices. If Walmart (along with everyone else) decides to raise their prices right away, we would have massive inflation, and our money is now devalued. Since we’re trying to argue this won’t happen, we’ll suppose that Walmart and the other retailers don’t increase the price of Xboxes. For the price of Xboxes to hold steady, the supply of Xboxes will have to meet this added demand. If there are shortages, certainly the price will rise, as consumers who are denied an Xbox will offer to pay a price well in excess of what Walmart was formerly charging.

Suppose an economy produces £10 million worth of goods. e.g. 1 million books at £10 each.
If the government doubled the money supply, we would still have 1 million books but people have more money. Demand for books would rise and firms would push up prices.
The most likely scenario is that if money supply was doubled. we would have 1 million books sold at £20. The economy is now worth £20 million rather than £10 million. But, the number of goods is exactly the same.
We can say that the increase in GDP is a money illusion. – True you have more money, but if everything is more expensive, you are not any better off.
In this simple model, printing more money has made goods more expensive, but hasn’t change the quantity of goods.

In the days of Idi Amin, Uganda took the risk of printing new money to bail that country’s economy out of the doldrums. The exercise backfired so catastrophically, it has taken Museveni over two decades to right the disastrous consequences.

Robert Mugabe’s Zimbabwe is still stewing in the fire of economic wreckage which was exacerbated by the decision of that country’s Central Bank to print new money for the economy to bounce back. Each time Zimbabwe printed new money, the country’s currency drops in value. Today the Zimbabwean dollar can buy nothing anywhere in the world except in bales of the currency to buy a hamburger.
- See more at: http://www.vanguardngr.com/2009/09/printing-more-money-can-backfire/#sthash.OLmeLTW5.dpuf

Everyone in Zimbabwe during its hyperinflation were under severe pressure unlike anything they had ever experienced. The government had increasingly turned to rampant money printing as a funding alternative and as this newly printed money made its way into the markets prices began to rapidly rise.

As inflation skyrocketed, it placed unique pressures on businesses – revenue that companies made couldn’t compensate for the cost of restocking more expensive supplies later. This margin pressure is common in high inflation environments: the net result was that businesses began to close down. By 2006, all stores had emptied. Prices hurtled higher due to an even greater scarcity of goods and society morphed into a barter economy.

teemy:


http://economics.about.com/cs/money/a/print_money.htm



http://www.economicshelp.org/blog/634/economics/the-problem-with-printing-money/



http://www.vanguardngr.com/2009/09/printing-more-money-can-backfire/



http://www.moneyweb.co.za/uncategorized/the-zimbabwe-lesson-dont-print-money/