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In the US, at least, the government has 2 ways it can fund itself.
Taxes, which are collected through a variety of means- income tax, for example, or import taxes, etc. these funds go into the treasury, which then get doled out to pay for things.
If taxes are insufficient, or there's some type of emergency that requires an excess of funds more quickly than they can levy with taxes... the government takes on debt. Specifically, they use a number of different instruments including bonds.
The "national debt" is the the sum of all those bonds, loans and whosiwhats its that are taken out to pay for things. it's the debt that the national government owes to others.
You're mostly correct, but I would like to add a piece that not everyone understands.
The government issuing debt can be good for the government because of inflation and economic stimulus.
When the government sells debt, it sells $ in the future for a different (usually lower) price today. It doesn't actually pay interest, the effective interest is determined by how much the market is willing to pay for it.
Lets say the government sells a billion dollars worth of bonds, which will pay out in 20 years, they sell it today for three quarters of a billion dollars. Sounds like a bad deal, right? The government is clearly losing a quarter of a billion dollars.
Except, the government doesn't have to pay it back with money from today, it pays it back with taxes it will earn 20 years from now. If in those 20 years, inflation is say... 3% on average. Lets just ignore compounding to make it simpler, and say the costs of everything goes up by 60% over those 20 years. Assuming the tax rate stays the same (and ignoring compounding effects) they'd be collecting 60% more actual dollars than they would today. Paying back a billion dollars from taxes at that point is now easier than it would have been to try to raise 750 million from taxes today.
The government just "made" money by borrowing money. Really, it comes from inflation eating away at wealth, which is why the government printing debt like this usually causes inflation. All things inflating equally is a wealth tax.
Side note: The current inflation issues we're seeing are not happening equally; wages are not going up as fast as inflation on common necessities like housing and groceries. That's a different problem, not caused by government debt printing.
Then there's the economic effects of spending the money now. More economic activity today usually means more taxes collected overall throughout the years that whatever they spent the money on benefits people. A new bridge or road, better air traffic systems to allow more flights, safer oceans to protect shipping, etc.
Not sure who downvoted you, lol. You're quite correct (I just didn't want to get into the weeds, heh.)
and yes. it's good to remember that not all debt is "bad" debt. Especially on a national level. I still think it'd be nice if they passed a balanced budget, though. (and one that covered everything that was important. like healthcare and housing and infrastructure and climate resiliency and stuff, and not bombs for genocidal maniacs)
Why doesn't the US govt print USD to cover its deficit instead of borrowing?
Printing more money doesn’t make more value- it actually reduces the individual value of a dollar.
That value needs to come from somewhere.
When a currency is backed by some commodity (we backed by silver and gold, historically.) that value comes from whatever is backing it (ie you could go to a bank and get that stuff.)
Today, the dollar is backed by the confidence of the people using it. Specifically, the confidence in the US government. The value is also affected by supply and demand for that currency.
If the US suddenly decided to print the trillions dollar coin, the market reaction wouldn’t be all that hot. There is some wiggle room but generally not a lot.
If you want to know what happens when you push it too far, check out the Weimar Republic (Germany), Hungary after ww2 and Zimbabwe in the late 2000’s
It’s very much not-good.
80-90% of all USD that exists was printed during or after covid. I'm sure they can print gradually over time to cover excess budget deficit
This is factually incorrect.
the M2 money supply expanded from 15 trillion to ~22 trillion from 2020 to feb. 2022 Then 1 trillion or so was removed by apr 2023.
You'll notice that inflation tacked that fairly closely. when there was an explosive growth of the m2, inflation was insanely high and then when some was removed, inflation began cooling off.
Also, Please go study some history.
This is what caused hyperinflation in the Wiemar Republic
This also caused hyperinflation in Hungary,
This is what triggered hyperinflation in Zimbabwe
In fact, there are many countries that have experienced hyperinflation, in which printing money is a common factor.
Is it possible that there's some wiggle room, where the effects won't be so bad? sure. Does that make it good economic policy? not really. COVID wasn't about perfect, or even good. If you're on fire, it's natural instinct to start patting the fire out with your hand. It burns your hand, and that's not good, but it's better than burning to death, right? Same concept.
I was referring to M1 https://fred.stlouisfed.org/series/M1SL
It looks like they have since clarified that they changed the definition without making a new graph, obfuscating the data
You're still wrong.
the M1 money supply is the vast majority of the m2 supply in 2020, it was 18 trillion and peaked at 21 trillion and then went down to 19.5 trillion. That's not "80-90%". That's 16.67%
And once again:
The increased money supply caused rampant and near catastrophic inflation that is the root of today's affordability crisis.
So do you get the point yet?
The graph clearly goes from 4 trillion to over 20 trillion and I have already found why, clearly you didn't even click on it. That is 80%
Where do dollars come from? Is there any limit to how much money the government can create?
cash is largely minted by the government, and they usually aim to maintain "enough" (currently 2.3k billion dollars currently?)
Most of the money supply is not in physical cash, though- they call that the m1 supply which is found in things like savings and checking accounts, other kinds of deposit accounts, etc.
Currency is added to the economy by buying back government securities (think bonds). Specifically this is the Federal Reserve. we also pay interest on money held at by the Fed. (Banks invest the money.)