When Governments Can’t Print Money!

By – SWAMINATHAN S ANKLESARIA AIYAR, The Economic Times

The inability of countries to print their way out of debt is something markets have reckoned with only recently

We are used to the notion that companies can go bust for want of cash but not governments, since the latter can print money without limit. This may cause high inflation or even hyperinflation (as in Russia under Yeltsin or Germany in the 1920s). But as long as governments can print currency, they can spend and borrow without limit. Right?

Wrong. The panic in financial and stock markets across the globe last week reflected the growing realisation that neither the US nor major European governments can print money without limit to finance government bond issues, and so could default. The US Constitution says both houses of Congress must approve any increase in the government’s borrowing limit (or debt ceiling). If either house says no, the government cannot issue more bonds, and cannot ask the Fed to print money to buy forbidden bonds.

Bringing tears to Indians’ eyes

Jan 21st 2011, 14:00 by S.D. | LONDON

Source: The Economist

HEADLINES about the Indian economy—particularly in the international press—have in recent times been dominated by excitement about near double-digit growth and speculation about when (and whether) India is on track to start growing faster than China. But domestically, (and now elsewhere, too) the big economic—and increasingly political—issue is a familiar one: runaway inflation.