Remember there are 3 ways for the US gov’t to finance budgets deficits.

First is to borrow on the loan market, which will raise interest rates and may cause a recession.

Second is to monetize debt from the Fed, which is inflationary. This may interfere with “monetary policy.”

Third is to borrow money from foreign central banks. The two keys to that are (1) a relatively strong economy, and (2) keeping the dollar the “world reserve currency,” specifically the currency oil producers most willingly take for their oil. As long as everyone needs dollars to buy energy, foreign central banks will have to keep dollars and may want to loan them back to the US as a safe investment.

The third way may give rise to trade deficits, as we buy a lot more stuff with our new money than we sell. The problem with those is that if America grows lazy and stops producing goods, instead “producing” only money, and foreigners realize they can’t spend their dollars on anything pleasant, the demand for dollars will collapse and devaluation will folow.

The state will alternate between these three methods to maintain its “health.”

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