So, currencies are debt notes. Central banks create money by loaning money to banks, ergo creating debt rather than money in a way.
This is why we can never get rid of inflation, only control it. This is why national debts keep rising. From what I’ve gather deflation is much worse than high inflation.
So if the debt keeps building up, is the whole global economy not just a ticking time bomb that will need to implode?
If not, how does it stay sustainable.
In: 1
No, the central bank does not create money by simply lending it to banks. They create it out of thin air. It’s called inflation. New debt is created by the treasury by issuing new bonds to investors, which can be banks.
Growth is what keeps nations’ debt loads sustainable – if a country’s real GDP growth or a states real revenue growth rate exceed the rate at which its debt grows, it can literally “grow out” of its debt. That is the economic aspiration, and not every country will be able to do that, so some countries may default in the future if they can’t keep their debt sustainable.
Also don’t worry about inflation- low, stable inflation in the neighborhood of 2-ish percent is a GOOD thing, its usually the rate which encourages the most consumer and producer spending year after year to keep the economy humming, because after all, inflation is just a measure of propensity to spend, i.e. is it more worth my time to save for X or buy it immediately if I believe it may be more valuable/expensive/scarce in the future.
Latest Answers