Endgame: The End of the Debt SuperCycle and How It Changes Everything

Today, interest rates are exceptionally low and the growth outlook for advanced economies is modest at best. This leads us to conclude that the question is when markets will start putting pressure on governments, not if.

Monetizing debt is thus a two-step process where the government issues debt to finance its spending and the central bank purchases the debt from the public. The public is left with an increased supply of base money.

Governments cannot run deficits in excess of the growth in GDP without eventual consequences. As we will see in the chapter covering the research of Rogoff and Reinhart, things go along well until Bang! bond investors lose confidence in the ability of a government to pay its debt, even if that debt is denominated in a currency the government can pr

Saint Milton Friedman taught us that inflation is always and everywhere a monetary phenomenon. A central bank, by printing too much money, can bring about inflation and destroy a currency, all things being equal. But that is the tricky part of that equation, because not all things are equal.

This squares solidly with the work done by Rogoff and Reinhart, showing that when the debt of a country reaches about 100 percent of GDP, there is a reduction in potential GDP growth of about 1 percent. As we wrote earlier, government debt and spending do not increase productivity. That takes private investment. And if government debt crowds out pr

The Fed could enforce these interest-rate ceilings by committing to make unlimited purchases of securities up to two years from maturity at prices consistent with the targeted yields. If this program were successful, not only would yields on medium-term Treasury securities fall, but (because of links operating through expectations of future interes

In the United States, we ran up unfunded pension deficits at many local and state funds, to the tune of $3 to $4 trillion and rising. We have a massive (multiple tens of trillions of dollars) bill coming due for Social Security and Medicare, starting in the next 5 to 7 years, that makes the current fiscal crisis pale in comparison.

If great contractions are caused by excessive debt and these contractions lead to deflation, then the Fed can only temporarily offset the inevitable deflation. Quantitative easing (QE) will only work by inducing another borrowing and lending cycle. This will mean that the economy will add more leverage to an already overleveraged economy. Thus, the

In fact, for a long time, individual banks issued notes promising the holder to exchange the notes for gold. The idea that a currency should exactly equal national territory is really one that came about very late in history.