The revenue raised will fall short of projections, so governments will turn to monetizing the debt
by expanding the money supply--which will bring on higher inflation.
But as long as the Federal Reserve, which in theory is apolitical but in practice is an enabler of both parties, is willing to enable Congress' debt addiction by monetizing the debt
, the fiscal pill will continue to be avoided.
Monetizing the debt
means using money, creation as a permanent source of financing for government spending.
political system resorts to monetizing the debt
. In this situation, the U.S.
Another large bond-buying program could open the central bank up to accusations it is monetizing the debt
, something Fed officials would be loathe to do.
Bernanke's strong statement last week about not monetizing the debt
suggests that he's in no mood to extend the $300 billion purchase plan any further.
Virtually all students answer by writing the major point that just creating money to pay off the Federal Government debt is known as "monetizing the debt
," and will lead to inflation.
In newspeak, it's called monetizing the debt
. If it was called printing up worthless money out of nothing, the natives might just become restless about the whole process.
However, at the state level, the link between deficits and inflation is more direct since monetizing the debt
is not an issue.
A subtler version of money printing involves monetizing the debt
by purchasing government bonds whose proceeds fund government agencies.
"The quantitative easing program, to the extent it involves buying longer-dated government debt, has often been described as 'monetizing the debt
.' This is widely considered to be inflationary, and so inflation expectations are sensitive to such purchases."
This brings us back to Fisher's "cardinal sin" of monetizing the debt
. In his April 16 speech, Fisher pointed out that the dollar is a "'faith-based currency' ...