/biz/ - Business & Finance

>>55101114
>2) Debt from people holding dollars
I understand how the government can get money from taxes and debt from made-up dollars, but what do you mean by debt from people holding dollars?

>>55101166
Yeah this is usually where I start to get lost. I get that people and companies need to hold currency, but that's not enough to prevent things from going to shit, right?

How can the government prevent increasing fiscal debt and interest payments from impacting the dollar? Is this something that *will* happen if the government continues to keep a large deficit and things continue on their current course, or is that more of a grey area? In my mind it must have a lot to do with confidence and what people know, because if I'm the government and I expand the money supply by 10%, the purchasing power, in real terms, of dollars doesn't drop instantaneously. People have to adjust prices and make the decision whether or not to continue holding dollars. I guess the question there becomes to what extent will the amount of money the government has to create out of thin air to service increasing debt affect the dollar and how quickly?

Does it make sense that there's a sort of positive feedback loop here, where the increase in debt will increasingly affect and inflate the dollar? As in we should expect inflation to increase, increasingly, in the long-term? Now the government seems like it has a very vested interest in keeping interest rates low.

Thanks for the post anon. A lot of this is just me thinking out loud. If you're willing to put in more effort, is it a correct notion that banks also sort of create money out of thin air with fractional reserve banking? How's all that differ in its impact on inflation and its effect on the dollar?