SOMEONE LEARNED TO COPY AND PASTE! WOOOOO!

The short answer is that inflation increases uncertainty, which is an anathema to savings and investment. Low, stable, and predictable inflation, or price stability, makes planning consumption and investment easier for businesses and investors easier. The benefits of well-anchored inflation expectations includes the ability of businesses and consumers to make long-term, productive plans.

It certainly is possible that higher or rising inflation can accelerate growth, but central banks are rightly cautious to take this route because the credibility of a central bank's commitment to low inflation is extremely important for expectations to remain anchored. If expectations become unanchored, rising inflation can turn into accelerating inflation, as businesses and consumers act more to protect themselves from the effects of inflation, creating a vicious circle that leads to higher and higher inflation. Constantly rising inflation creates a high interest rate environment that encourages speculative and unproductive investment, which generally leads to bubbles and crashes.

I'm sympathetic to the view that somewhat more inflation would reduce unemployment, but recognize that central bank's make a conscious (and reasonable) trade-off between the risk of instability and unemployment in their commitment to low and stable inflation.

Stack, it's not like you are an economist from Canada or anything.

In theory, printing money is a sound idea. A strong currency is usually bad for sales of domestically produced goods. A strong currency means that people can buy less Canadian made goods because their currency, the US$ or Euro or whatever, has less purchasing power versus the C$. Weakening your currency, especially during a recession, is actually a good way to spur demand for exports.

There are a few issues with your proposed solution, though. First, your households are holding a lot of debt. This, presumably, means that they are reluctant to spend. As a result, they are hoarding all their loonies. Saving is undoubtedly good for individuals but bad for the economy as a whole. Like you said, it's a paradox. Canada needs people to spend money, but they won't, either because they're reluctant to run up more debt (unlikely) or that the recession is crippling demand (more likely). It's not a confidence problem (imaginary), it's a demand problem.

Central banks have a few ways to spark spending, and hence spark demand - monetary and fiscal policy. Monetary policy would in essence be the money supply, which is what you're proposing. However, printing more money comes with its own problems, mostly political. The main goal of any central bank is to control inflation, even at the expense of demand. For proof of this, see the 1980-81 recession in the United States, when we had terrible monetary inflation that led to the Fed imposing drastic cuts in monetary policy. As a result, it sparked a pretty bad recession, all at the expense of inflation. Central banks just don't want to cause inflation, period. Plus, it's very unpopular politically. Inflation hawks won't want to print more money because we'll owe China blah blah blah crap excuses like that. It won't happen, even if it is a prudent idea.

The other side of the BoC's policy coin is fiscal policy, where they can lower interest rates to hopefully increase loans and borrowing so that people buy stuff, moose hats or hockey sticks or whatever. According to the BoC's website, the overnight rate (discount rate for lending to banks, which is a signal for all other interest rates) is at 1%, so it can't go much lower or nobody would make money off loans.

What Canada has right now is a liquidity trap. If you're a first year econ student, you probably haven't gotten to this yet, but a liquidity trap occurs when interest rates are so low that monetary policy has no effect. Basically, the BoC has exhausted both of its main tools for combating the recession. Even though interest rates are ridiculously low, people still won't spend, and putting money into the economy will not do anything to spark spending. Any fluctuation in the monetary base will ultimately not cause prices to fall, which means the C$ weakens but prices do not drop accordingly, so people effectively need to spend more money for the same products. No doubt good for exports, but exports are only a small portion of economic production. In the US, our monetary base essentially tripled between 8/2008 and 6/2011 without any discernible effect on prices (http://krugman.blogs.nytimes.com/2011/10/07/way-off-base-2/).

So yeah, that's probably the issue here.

Well, that would explain why I can't resist talking about Canada's monetary policy...

Customs Union with the USA :P

"an anathema to savings and investment. Low, stable, and predictable inflation, or price stability, makes planning consumption and investment easier for businesses and investors easier. The benefits of well-anchored inflation expectations includes the ability of businesses and consumers to make long-term, productive plans. "
but with Interest at an all time low (as of 2012) and inflation at a 69 year low (as of 2008) this theory has been proven to be bogus. Carney (governor of the bank of Canada, Canada's equivalent to Ben Bernanke) has stated repeatedly that he would like to hike interest rates but keeps lower them because he wants businesses to spend rather then hoard. I think this is part of the problem because he has said that once they start spending, he will increase interest rates, making it game theory, best outcome is for you to save and your opponents to spend. Worst outcome is for everyone to save. Well because the best outcome is to save, everyone chose to save and we got stuck with the worst outcome.

So buisnesses aren't spending enough as it is, so therefore the theory of stable inflation falls flat, because there is massive uncertainty in the economy already.

"I'm sympathetic to the view that somewhat more inflation would reduce unemployment, but recognize that central bank's make a conscious (and reasonable) trade-off between the risk of instability and unemployment in their commitment to low and stable inflation."
However unemployment isn't a problem in Canada, its 1.1% above historic levels, compared to the 3.6% for USA or the 3.2% for the EU. So I guess that's another problem to consider, we don't want to get into the problem of over employment. However fiscal policy can change that. One way to do that is increase the minimum wage and unemployment insurance decreasing the incentive for people to find jobs, as well as for companies to higher. This would also mean the lower and middle classes would be effected less then the rich from high inflation as it would force companies to increase their salaries. Middle class families would also have the advantage have there debt being worth less, meaning higher prices wouldn't be to problematic.

I really don't see the problem with inflation being the solution to this problem. But again, I'm first year economics with the only economics course under my belt so far being Econ 101. So I am to claiming to know everything.

"There are a few issues with your proposed solution, though. First, your households are holding a lot of debt. This, presumably, means that they are reluctant to spend."
Household spending to after tax income was 151% in 2011 and granted is lower this year, it is still vastly higher then it should be. With interest rates being below the rate of inflation for 3 straight years, the incentive to spend is high. The 2012 rate was lower We consumers are looking at the short term incentives and spending as much money as the banks are willing to loan us, meanwhile corporations are looking at the long term knowing full well that this is unsustainable and are starting to save, even though this is reducing AD and AS decreasing the chance of stable economic growth causing a further incentive to save. The normal solution to this is low interest rates, but we have tried this for 4 straight years and it isn't working. We cut corporate tax rates from 22.5% to 15% to increase corporate profits to give them an incentive to spend, but instead of using that money, either by giving it back to the investors through dividends or buy expanding their operations, they just put it in a bank. They created lots of incentives to expand which I can't remember the full details on. Forbes magazine rated Canada's government the most business friendly government in the world in 2011 (and the opposition attacked our government for that in the 2011 election) as well as rated Canada the most business friendly environment in 2011, yet companies cited potential future economic uncertainty as a reason not to take advantage of how business friendly we were.

They now have more money in the bank, then our government has debt.

"Canada needs people to spend money, but they won't, either because they're reluctant to run up more debt (unlikely) or that the recession is crippling demand (more likely). It's not a confidence problem (imaginary), it's a demand problem."
But its not really. As explained above, our government and our households have spent every penny they could, to make up for the fact to business investment dropped 21% last year (despite after tax profits rising 30%). Despite that we still had economic growth of 2.9%, far higher then most developed economies. As banks are becoming more reluctant to loan (as many households now have debts that are triple our after tax income) the consumers can no longer take on additional debt and our government as its already doing everything in its power to boost aggregate demand without taking on unsustainable debt as a result our GDP growth is declining as more money is getting stuck in the liquidity trap. Economists (namely from what I read in the economist and globe and mail) generally agree with the policies our government is federal government is implementing and the reason they are not working is despite being considered the most business friendly environment in the world, has businesses that are not spending.

"Central banks have a few ways to spark spending, and hence spark demand - monetary and fiscal policy."
Central banks don't control fiscal policy. Fiscal policy is government taxes and spending, monetary police is the central bank domain, controlling money supply and interest rates.

"The main goal of any central bank is to control inflation, even at the expense of demand. For proof of this, see the 1980-81 recession in the United States, when we had terrible monetary inflation that led to the Fed imposing drastic cuts in monetary policy. As a result, it sparked a pretty bad recession, all at the expense of inflation. Central banks just don't want to cause inflation, period. Plus, it's very unpopular politically. Inflation hawks won't want to print more money because we'll owe China blah blah blah crap excuses like that. It won't happen, even if it is a prudent idea."
The difference between the states and Canda though is our government debt isn't in a bad situation. We're predicted to balance the budget by 2014 and our federal governments debt per capita is 1/3 of the states. Because inflation will likely mean higher interest rates on treasury bonds (making it harder for government to take on new debt, but decreases the value of old debt)

"so that people buy stuff, moose hats or hockey sticks or whatever."
I love your perception of Canadians. Adding timbits would make your list complete and make up 90% of our economy (with Igloos and dogsleds being that final 10%).

"What Canada has right now is a liquidity trap. If you're a first year econ student, you probably haven't gotten to this yet, but a liquidity trap occurs when interest rates are so low that monetary policy has no effect."
Yeah I really haven't. However its only a partial liquidity trap because only the businesses are saving, not everyone.

"Any fluctuation in the monetary base will ultimately not cause prices to fall, which means the C$ weakens but prices do not drop accordingly, so people effectively need to spend more money for the same products."
This is why I want inflation. high inflation will encourage spending as your money will be worth less tomorrow but at the same time will decrease the value of your debt (which we have to much of). Sure high inflation causes uncertainty, but there is already so much uncertainty, if it can spark spending, why not try it?

"In the US, our monetary base essentially tripled between 8/2008 and 6/2011 without any discernible effect on prices (http://krugman.blogs.nytimes.com/2011/10/07/way-off-base-2/)."
I know that money supply doesn't equal inflation. The equation we have used in class is Price=Money Supply*Money Velocity (speed of spending)/Real GDP
obviously with a liquidity trap velocity is down because people are refusing to spend. However Real GDP would be down because of the increase in savings and my proposal is increasing the money supply. If we double the amount of money in supply, assuming new change to real GDP or consumer confidence, price level would be double.

I don't have time to comment fully Fasces. I'm sorry, maybe in a few days I'll be able to. I just want to give you something to chew on.

You have the right definition of price. Price= (Monetary Base * Velocity) / Real GDP

Lets just put everything at a pre-2008 index of 1. Now, once the recession hit, velocity dropped. Price deflation started, and to counter this (because deflation is even worse than inflation) they increase the monetary supply. Now lets say you triple the monetary base in order to keep inflation at 2% or so. What happens when velocity picks up again? Shit tons of inflation, and if real growth can't match that, then you're in trouble. We have already seen examples of this in the UK and US with elevated levels on inflation in 2011. To see how inflation destroys an economy, please see South America for numerous examples. To see how management of inflation can provide the stability needed to grow an economy, look at Germany. The Bundesbank is the *best* central bank in the world at meeting inflation targets.

Also, I forget which monetary base figure you look at when doing that....gee I gotta brush up on my macro

I don't think your assumption will hold and therefore going monetarist with the quantity theory of money isn't the best approach. Without fixed V, that equation loses all macroeconomic explanatory power and turns into formal identity. And in a liquidity trap, you just can't predict when the V will skyrocket again. Especially since the printed money will overwhelmingly turn into excess reserves at balance sheets of commercial banks and will not really find its way to the real economy - from your description, the situation in Canada resembles the one we had in Europe last year, and the banks were just scared shitless of actually lending the money out then. So you would have to raise the monetary base much more to achieve your goal of doubling the prices. And once the psychological barriers break down and banks pump the money into circulation, you better sterilize that excess money fast or you might start contemplating adding some zeros to your banknotes.

"And once the psychological barriers break down and banks pump the money into circulation, you better sterilize that excess money fast or you might start contemplating adding some zeros to your banknotes. "

I don't know who you were addressing in your post ulytau, me or fasces, but that's the point I was driving at.

I was talking to fasces as the OP, I agree we share similar viewpoint on the issue.

props to ultau and goldfinger for doing a really good job why my solution isn't as desirable as I use to think.