This is the part 2 of the article. Read the Part 1.
The printing press switch on has begun to be used to stimulate the economy. The government decided to stimulate consumer demand through cheap loans, subsidizing banks in one way or another. And how do you think they have done this? That’s right – they switched on the printing press.
For example, there is very strong demand and high prices at the same time in the US real estate market, due to the simple reason that mortgages for ordinary consumers are very affordable, because a large part of the interest on the mortgage is repaid by the state. The result of stimulating this economic sector was the growth in prices rather than economic growth. But this is not the worst.
In other sectors with such high liquidity (available cash) demand certainly has increased, but not the offer of the US producers of goods and services. Partly the US economy is saved from inflation due to cheap Chinese imports. China, with its low prices and lots of products helps the US to solve the problems of saturating the market with goods whilst combating inflation. However, in the long term, China’s imports damage the US production. American products do not compete with cheap Chinese goods. It also “undermines health” of a number of other sectors of the economy related to the extraction, production and processing of raw materials for these products.
As a result, the American manufacturer leaves entire groups of economic sectors. At the same time to buy imports something needs to be exported.
One of the most famous American export products is weaponry. But the US exports are still inferior to American imports. And how do you think the government solves this problem? Yes, they switch on the printing press, and buy goods abroad.
Printed money which is not secured with goods and services is the same debt that no one is going to return. But if there is a debt that no one is going to return then somewhere there is a poor someone that has to pay off for all this. That is, if the state spends more than it earns, then who pays the difference? Think about it.
According to the laws of economy there is some certain amount of goods and services (GDP) and a certain amount of money in the country, and because of the balance between them, there are established prices.
If, for example, the state subsidizes banks with money which is not secured with goods, the result is the inflation growth. To avoid this, the state sells government bonds to the same banks (ie a promise to repay the debt with interest) at the same time taking away the “extra money”, and converting it into the most valuable securities. Thus the state creates an asset, which is supposed to be secured with the state property, which is essentially a soap bubble because it is secured with nothing, as the state has no such amount of property covering these “pledges”.
I remind you also that the bonds have their maturity date, but at the time of repayment the state makes one more issue and redeems the previous bonds with the new issue. Perhaps it even includes interest on the bonds, which it is also unable to pay. And considering that there has been the budget deficit in the US for decades (and there is no end), then imagine how great is the sum of the issue of empty assets. To redeem the liabilities for these securities it is necessary to make the state budget profitable (revenues must exceed expenses) and profit of the budget has to be huge to be able to settle the liabilities at least in the next hundred years!
Well, imagine that these securities will sooner or later cease to be taken anywhere: the economy is not made of rubber, and it no longer needs so many US government bonds. When holders of these securities come and require the repayment and the state will have to repay them.
That’s when the US economy will say, “Oh, How deeply we have fallen!”, Because it will not be able to pay off old bonds by issuing new ones and will have nothing to do but to pay off in state property.
But the US is not going to do it, and then they will have to somehow solve the problem with both the economy, which is no longer self-sustaining, and with the claims of creditors including Russia China, and Japan, etc.). And how do you think the United States will solve this problem? The answer is obvious. But this whole scheme called “Uncle Sam’s printing press” has its limits. And the end is coming, because some states have already disposed of the government bonds and the dollar both in the reserves and external settlements.