Guess What Is Keeping the US Economy Afloat – Brownstone Institute 7/11/23


Have you ever wondered what or who really funds the activities of hegemonic America, from its domestic spending through to its foreign wars? The answer isn’t immediate and it may surprise you.

The first thing to understand is what it really means to fund something. Funding for American activities is provided through dollars, where “a dollar” represents a certain amount of purchasing power at a particular moment. Any government needs purchasing power in order to employ people and buy things, so the US government wants to have dollars.

According to economics textbooks, governments get their purchasing power by taking away currency from their populations and companies via taxation. In this textbook model, printing more currency with which to buy things and employ people is also a kind of taxation in which government can engage, because printing more money (all else fixed) increases the supply of money and thereby reduces the “price,” i.e., the purchasing power, of the currency already held by everyone else.

With no commensurate increase in the demand for money, the expansion in money supply created by American money-printing leads to all existing dollars buying fewer goods than before the money-printing. Nobody sends a bill: the tax just happens, with every clank of the government printing press. Doubling the amount of money in circulation via the printing press, and then giving the printed money to the government to buy stuff with, is basically the same as the government taxing half of private-sector income and buying stuff with it.

The implicit tax created by American money-printing can be avoided by simply not accepting dollars in exchange for labour and goods (and accepting instead, say, some other less-diluted currency, or goats. Or onions, for that matter). This is why runaway money-printing eventually leads to runaway inflation and an economic crash, as people flee from the inflated currency to avoid the implicit taxation.

Tributes to him who wields the mint

This implicit tax from money-printing is known in economics as a seigniorage tax, and it doesn’t apply only to a government’s citizens. In fact, if a lot of domestic currency is held abroad, then a lot of the seigniorage tax bill created by just printing money is paid by foreigners holding that currency.

It turns out that there are an awful lot of US dollars held right now by foreign countries, and particularly by supposed enemies of the US….

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