Long Run Impact

In the long run, changes in the supply of money affect the general level of prices. This relationship, formally known as the quantity theory of money, has been demonstrated repeatedly in history.

Historical Precedents

When the Spanish brought gold and silver back to Spain from the Americas in the 1700s, the increase in the money supply started inflation that lasted for 100 years. When the Continental Congress issued $250 million of currency during the Revolutionary War, the economy suffered severe inflation. A similar thing happened during the Civil War when nearly $500 million of greenbacks were printed.

Monetizing the Debt

When the federal government financed the Vietnam War with deficit spending in the 1960s, interest rates started to rise. To keep the rates from going up too high, the Fed decided to monetize the debt-create enough extra money to offset the



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