It’s quite simple: Anyone can borrow as much as someone is willing to lend.
That said, the government doesn’t borrow money. They create it.
That said, the government doesn’t borrow money. They create it.
DR Loan 100 CR deposit 100
I used to be an advocate of Austrian economics until I worked as a bank auditor and really got to understand operationally how they work. Now, I feel the Austrian economist movement has done the world a great disservice and it’s a crying shame because there’s nothing wrong or insidious about banking.
FRB always ended in bankruptcy and bank runs. A central bank was created to bail them out. And what happened? The central bank went bankrupt doing the same thing. In 1971 the US couldn't honor its foreign gold obligations – which is exactly what happens when you promise to deliver something you don't have. The US defaulted on their obligations.
> Most of the money in the economy is created, not by printing presses at the central bank, but by banks when they provide loans. [0]
You said:
> Borrowing does not create money in FRB, since all loans are deposits
Loans are not deposits. Loans sit on the asset side of the balance sheet and represent an IOU from the borrower to the bank. Deposits sit on the liability side of the balance sheet and represent an IOU from the bank to the deposit holder - the borrower in this case. Banks are literally in the business of swapping IOUs... Our IOUs which are not widely accepted for their IOUs which are widely accepted.
Furthermore, commercial banks make absolutely zero promises to redeem their IOUs for base money or central bank issued money, or anything else for that matter. Read the terms and conditions of your bank account to see for yourself! If the bank creates too many bad loans, then the value of their IOUs fall to take this into account.
Lastly, Central banks were not created to bail out commercial banks. The first central bank (the Bank of England) was created by the Government at the time to fund the on-going war with France. The government gave the Bank of England monopoly rights over currency issue in return for financing the war - i.e. giving them a whole bunch of IOUs on the Bank of England to pay soldiers and factories because the credit risk of the government at the time was considered quite poor.
[0] https://www.bankofengland.co.uk/knowledgebank/how-is-money-c...
At the bottom of the tower of USD is printing money. ~80% of treasuries are held domestically, and the foreign buyers purchase it with USD that came from the treasury.
The loss of confidence in the value of the dollar is as much a cause of hyperinflation as the actual money supply. Loss of confidence in the value of the dollar can rapidly increase the velocity of money, which means that less money supply is needed. This causes more inflation, which further weakens confidence, increasing the velocity further, causing prices to spiral out of control.
Tax revenue is old printed money. Bonds are future printed money. All government revenue is money they created.