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Monetizing the Debt

My editor tells me I need to make these shorter so I’m gonna try to take some small bites at this thing.  We can’t monetize the debt.  This notion is another mistake frequently made by friends of liberty when talking about monetary policy.  Monetizing the debt means one of two things (which basically amount to the same thing in practice): the government causes inflation in order to reduce the real value of their existing debt or the government prints money to pay its debts (causing inflation in the process).  But this isn’t how our monetary system works.  The government doesn’t just print money.  The Fed creates money and it injects the money into the system in exchange for–guess what…….debt!  This means that creating those dollars requires the creation of debt–usually government debt.  So in order to print money and cause inflation (or stave off deflation) the government must go ever deeper into debt.  This is why we’re so deep in debt.  Someone please tell Sarah Palin and Glenn Beck.

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