All money is a form of debt. When the federal government creates debt by selling T-Bills, T-Notes and T-Bonds, it creates
Therefore, if the government increases the supply of our
money,without also increasing the demand, the value of our
will fall and we will have
The key words are "without also increasing the demand." Because the value of
is based on supply and demand, the value can be maintained or raised by increasing the demand.
What are the factors affecting the demand for
Risk and reward. The greater the risk, the less demand. The greater the reward, the more demand. Therefore, to increase the demand for
requires reducing the risk while increasing the reward.
The primary risk for
is loss of value, either by
or government devaluation. The U.S. government is known for fighting
and is not expected to devalue its currency. So the risk in owning dollars is minimal.
What is the reward for owning dollars? Interest. You would rather own dollars when they pay a high interest than when they pay a low interest. Do dollars pay interest? Yes, your dollars in your savings account pay you interest. Also, your dollars exchanged for T-Bills, T-Notes, T-Bonds, corporate bonds, municiple bonds,
markets, etc., all of which are forms of
all of which pay you interest.
You have a choice of many investments, some of which are
and some of which are not
The above investments, being financial debt, are
Investments that are not
include stocks, real estate and all commodities such a gold, silver diamonds and corn.
That is why, when interest rates are low, people are more likely to invest in
assets such as real estate and stocks. When interest rates are high, people are more likely to invest in
assets such as bonds and CDs.
High interest rates increase the demand for
which is why the Fed increases rates when it worries about
In the above chart, the red line indicates changes in inflation while the blue line indicates changes in federal debt. It is easy to see there is no relationship between federal debt and
The Fed is quite proactive about
as can be seen in the following chart.
In the above chart, the red line indicates changes in
while the blue line indicates changes in interest rates. Each time
rises, the Fed increases rates to increase the value of the dollar, compared with the values of goods and services.
In summary, increases in federal debt do not, and will not, cause
so long as interest rates create sufficient demand for
Since the Fed controls interest rates, the Fed has absolute control over
and is directly responsible for any periods of
we have had.