Money Spigot

Rain on my face
It hasn't stopped
Raining for days
My world is a flood
Slowly I become
One with the mud
--Jars of Clay

Credit creation is inherently deflationary. Credit money supply increases upon the creation of debt but it contracts when debt is repaid or defaulted on.

In past cycles central banks have countered the deflationary phases with lower interest rates that spark even more credit creation. But each cycle requires lower rates than before, and marginal bang for the credit buck gradually declines.

With lower interest rates waning in their effectiveness and approaching the 'zero bound,' central banks are now turning toward monetization. This involves printing money out of thin air to buy stocks, bonds, and other financial assets to prop up prices in the face of deflationary decline. Why must central banks do this? Well, the system has become so levered up from past credit creation that even small declines in prices threatens to render balance sheets insolvent.

The next logical step involves simply printing money and sending it to people directly. This is the endgame. Flooding the entire economic system--not just the narrow financial system--with freshly minted cash.

This is how all currencies collapse. First excess borrowing and debt. And then opening the money spigot to keep the system solvent, which morphs into a hyper-inflationary endgame.