monetize the debt

Monetize the debt

Financing the national debt by printing new money, which causes inflation due to a larger money supply.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Monetize the Debt

In government, to print money in order to repay the national debt. For example, suppose a government is $1 trillion in debt. Theoretically, the government can simply expand the money supply by $1 trillion and reduce the national debt to zero. It is not uncommon for governments monetize their debts, but because it increases the amount of money in circulation, it is considered highly inflationary.
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monetize the debt

To convert government debt from interest-bearing securities into money. Although both the securities and the money are considered government debt, the latter can be used to purchase goods and services. Thus, monetizing the debt is considered an inflationary process and, although it may temporarily depress interest rates, it is likely to result in higher interest rates and lower bond prices in the long run.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
Smick: Let's say the Italian elite finally reaches the conclusion that Germany is not going to allow the eurozone to reflate--that is, monetize the debt. Will it choose this new German-run financial unification entity, which sooner or later will hit the Italian elite with a loss of power and income?
Finally, one could also say the debt level is too high if instead of leading people to expect the government to raise taxes in the future, it leads them to expect that the Federal Reserve will monetize the debt, causing inflation.
Neither of these policies is popular; hence the temptation to print money (or "monetize the debt") to pay the bills.
to monetize the debt (finance it through money creation) or default on
monetize the debt (in other words, finance it through money creation).
One danger would be increasing political pressure on the central bank to monetize the debt by keeping interest rates artificially low.
The pressure, says Fisher, will be on the Fed to monetize the debt (print new money to pay the liabilities).
If the value of the dollar plummets because the Fed is forced to monetize the debt, what would that mean in real terms for the U.S.
An important feature of Kneebone's model is that he assumes that the monetary authorities only chose to monetize the debt of the federal government.
In addition, it is assumed that the money supply is exogenous to the state, since the federal government sets monetary policy and the monetary authorities choose not to monetize the debt of the state governments.