Money For the Rest of Us

National Debt Master Class Part One

May 8, 2024

Explore why a country can't default with its own currency, how central banks control interest rates, and if government borrowing crowds out the private sector. Learn about money creation, inflation risks, and cases of Japan and Venezuela. Understand the perpetual nature of national debt, its implications on investors, and the impact of large budget deficits on the private sector. Delve into the connection between Treasury bonds, bank loans, and money creation, along with Japan's inflation commitment and debt monetization strategy.

32:52

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Quick takeaways

Countries issuing debt in their own currency can't default unless chosen, government borrowing doesn't necessarily crowd out private sector.

Unlimited money creation doesn't inherently lead to private sector crowding; excessive money creation can cause inflation.

Deep dives

The National Debt Masterclass Overview

This episode serves as part one of a National Debt Masterclass, exploring the long-term risks for investors related to the U.S. National Debt. The discussion delves into the evolution of the host's views on the National Debt over the past decade, emphasizing the government's ability to issue debt in its own currency and manage interest rates. By analyzing examples like Japan's debt control methods, it showcases how unlimited money creation and government spending do not necessarily crowd out the private sector.

Introduction

2min

Understanding National Debt, Money Creation, and Inflation

3min

The Perpetual National Debt and Financial Implications

6min

The Impact of Large Budget Deficits on Private Sector and Money Supply

8min

Exploring the Creation of Money through Bonds and Loans

3min

Inflation Overshooting Commitment and Debt Monetization

13min

Insights on National Debt and Government Debt Issuance

2min

In part one of this three part series, we consider why a country that issues debt in its own currency can't default unless it chooses to. We also explore how central banks can control interest rates on the national debt. We also consider whether it is possible for government borrowing to crowd out the private sector.

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Show Notes

Money In The Modern Economy: An Introduction – Bank of England – Q1 2014

Money Creation In The Modern Economy – Bank of England – Q1 2014

Congressional Budget Office 2017 Long-term Budget Outlook