Houston, we have a problem. We are “flying” in a financial machine that 99% haven’t the foggiest idea how it works. This really isn‘t rocket science. (It’s Modern Monetary Theory (MMT) but not all that complicated.)
The government can create money. The government can impose taxes. Everyone wants the money to pay off the debt created by the taxes.
Once again: The government can create money at will. The government can never go broke. It can never become {I}nsolvent.
The money has value because of that tax debt you owe, not because it is backed by some commodity. Since there is no commodity backing the money, there is really nothing for the government to borrow. The government can drain excess money out of the financial system on a temporary basis by borrowing but taxes really serve the purpose much better.
Why drain money out of the system? To lower demand for goods and services. Note that demand pushes to increase jobs and capacity. Too much demand also pushes inflation. The government can never become {I}nsolvent but it can create {I}nflation.
How to increase demand? Increase the deficit. Does the deficit have to be supported with revenue from taxes and borrowing? No. The government can create money at will. Actually, until the money is created, there is nothing to tax or borrow. (That requires a careful thought experiment but it is true.)
Economy not feeling well? Unemployment too high? Increase the deficit (step on the gas pedal) and ease up on taxes (ease off on the brake). Supply nearing capacity? Ease off the gas a bit; just enough to keep some inflation is the system so that the incentive is there to increase capacity. Eventually a balance will be reached with 0% unemployment and 100% capacity.
More later.
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