Dutch, that concept is very interesting and something I never understood before. If I understand correctly the concept of supply and demand affects the value money as well as the value of goods and services. It also explains why some think globalization is a good thing. It helps balance the money supply with the goods and services available.
Sounds great, except money is created through debt. In order to keep kicking that can down the road, they're floating the idea of a trillion dollar coin.
Your conflating two issues: government debt, and government’s ability to create money. The first, the government borrowing money, by itself, does not increase the money supply: the government spends money, but someone else takes money out of circulation to give to the government. So debt, alone, does not increase the money supply.
Money can be created in two ways: one, by simply printing it, or in the digital age, by simply wiring it to another account, out of thin air.
Or, as the government has been doing, by lending money. Give someone a nice fat wire into their account, and call it a loan. Another form of this is “bond purchases”, where the government uses new money to buy private bonds. Incidentally, any bank can do this, not just the Fed. It is good to be a banker..... you can create money out of thin air.
Under “new monetary theory” government debt isn’t as big a deal, because the government can print money without penalty. Needless to say, it’s quite popular with politicians, for the same reasons Keynes was.
We (economists) know that the theory of inflation we were all taught is not correct, and “new monetary theory” is one of the new candidate theories. No one k owns what the limits of this theory are, or if it is actually correct, or just matches the data for the last 30 coincidentally.
