Abstract
This paper will explore the ideas that money is created by debt, and that new money is necessary for economic growth, and that therefore, absent calamity, debt will always grow faster than GDP. The implication of this is that the trend toward over-indebtedness is intrinsic to current economic systems.
Strange things are happening to interest rates. For years, it had been suggested that big deficits and higher levels of government debt would bring inflation and higher rates, but the opposite happened: inflation is low and interest rates have been plunging for almost forty years—in spite of skyrocketing debt levels and numerous periods where money supply growth has been high. What is more, since the Great Financial Crisis, the Fed and other central banks of the advanced economies have undertaken unprecedented monetary policy with various forms of quantitative easing that many economists warned would result in an acceleration of inflation and skyrocketing market interest rates. Yet in the United States, Europe, and Japan inflation remains below central bank targets and interest rates are historically low, even in negative in several cases.