Printing Money to Repay Debt

But don't be fooled by the radio
The TV or the magazines
They show you photographs of how your life should be
But they're just someone else's fantasy
--Styx

To combat deflation over the past 5 years, the Fed has been printing money like there's no tomorrow. Several reports now indicate less leverage in the system than previously. For example, some media outlets report that leverage as a fraction of household income has fallen. Some people view this as a bullish sign that we're turning the corner.

It would be bullish if the deleveraging occurred by paying off debt with real economic resources earned thru productive effort.

But when debt is payed down simply by printing money, leverage in the economic system does not go down. Paper money is not an economic resource. It is a claim on economic resources.

When newly minted cash is used to pay creditors, the economic system is still short the resources which were previously borrowed. Standard of living for either the lender or borrower remains constrained until those resources are produced and repaid to cover the short position.

Money printing creates the illusion that economic liabilities have been cancelled and that increased prosperity is just around the corner.