Monetize the Deficit

A deficit: basically, government debt. Government spends $5k, thanks to having $4k from taxes and $1k in bonds it sold to the public, leaving a $1k deficit (it still needs to pay back the public for the bond sometime...and with some interest).

To monetize the deficit is to print money to pay off a deficit. In this case, the government can print $1k in dollars to pay for that debt. Convenient, right? Of course, this increases the money supply, so it does contribute to inflation. Governments can’t just print all the money it needs without leading to hyperinflation (we’ve seen that happen before, and it’s not pretty).

Why is monetizing the deficit even a thing if it sounds super irresponsible, in an inflationary sense? While it’s flipping more accepted forms of economics on its head, some argue that you can look at macroeconomics another way: the government can print money to monetize the deficit, and then tax people to remove money from the money supply to keep inflation down. More conventional economics is the view that taxes are used to raise money, and playing with interest rates and the money supply controls inflation.