(04-09-2021, 06:16 AM)fenders53 Wrote: I think the FED has done a remarkable job of facilitating some order through challenging times. My concerns are with unhinged excessive deficit spending from politicians. We'll see if it continues to go parabolic or not. I know it's just a few trillion every couple months but pretty soon it adds up to real money.
I am not overly concerned, and again I would point to that graph linked above. Roughly 95% of our economic history after the Great Depression (the area of the chart below the black line) was conducted from a posture of deficit spending.
If substantial and prolonged deficit spending causes economic collapse, then the last four working generations that created the greatest concentration of economic wealth that humans have ever produced are problematic to that theory.
If instead modern monetary theory is correct, and deficits are merely a method for a sovereign government controlling a global reserve currency to increase the supply of currency (and corresponding economic opportunity) to its citizens and corporations to promote economic growth, that is a better fit for the past 90 years of economic history.
All monetary systems, whether tied to a gold standard, fiat, bitcoin, etc., rely on the faith of the users to have value. Currencies themselves have no intrinsic value. As long as the majority of the population doesn't think too hard about that, the system works. It's mostly inertia.
Changes to the prevailing monetary system have coincided with some of the most negative economic upheaval during the period since the Great Depression. When Nixon dismantled the post-war Bretton Woods system by taking us off the Gold Standard and creating the Petrodollar, that was largely responsible for the inflation and economic upheaval of the 1970s. Deficits were essentially irrelevant to what took place then. The dollar actually appreciated strongly against several other reserve currencies in the early 1980s, because of the huge increase in demand for dollars that the Petrodollar system created. The Reagan administration's solution for this was the Plaza Accords, which depreciated the dollar substantially against many of our competitors, including Japan, and likely was one of the primary triggers for Japan's following lost decades. The resultant increase in the supply of dollars relative to other currencies, and economic activity tied to dollars, helped dig us out of the double-dip recessions of the early 1980s and fueled the nearly unprecedented economic growth that occurred over the next 15 years. That growth remained explosive and unchecked until the late 1990s, when the government siphoned money out of the economy through budget surpluses.