Your writing, like that of so many, makes no distinction of what currency or country you are basing your analysis on. I see that you are from Slovenia, which is part of the EU and doesn’t have monetary sovereignty, but you quote numbers from the US Treasury, which does issue its own sovereign currency. They are completely different animals which are subject to different rules. I can only speak to the American dollar, so one must make an adjustment for their circumstance. EU member nations would be comparable to the states in the US, currency users, in regard to economic sovereignty.
There is little money to be lent at an affordable rate, and consequently borrowing money at a high-interest rate is risky in the sense that borrowers may not be able to pay it back, due to decreased income and profitable opportunities.
In the US banks don’t lend from reserves, which is why QE failed to entice them to lend. The lending comes first, meaning banks are in the business of qualifying borrowers, not actually lending them depositor’s money. They create credit accounts for the borrowers which are always balanced with the borrower’s contract to pay as the asset and the reserves the Fed uses to capitalize the loan, enabling interbank transfers, as the liability.
This effectively balances to zero, so no existing money is expended. The reserves created by the Fed are always reduced as the borrower pays down the loan principal, leaving the interest as profit to the bank. When the loan is retired all accounts between the bank and the Fed will have been balanced, creating no new money into the economy. The availability of money is never an issue for qualified borrowers. The rate which the Fed charges the bank for the reserves is determined by bond rates it sets by buying and selling Treasury bonds on the secondary market.
The risk in this system is that retiring any private bank debt requires public money that only Congress can create. Bank loans effectively allow future resources to moved across time into the present and delaying payment for those for a fee denominated by the interest rate.
The Central Banks are in control of the money supply. They can issue new units of their currency at practically zero expense to them.
One can never net retire debt with debt, so either new money creation by Congress or growth in GDP sufficient to “rollover” private debt must occur to prevent widespread default. Congress should also consider the currency drains of trade deficits and wealth accumulation when deciding fiscal policy and deficit spending, but a general misconception surrounding government as a “user” of the currency, not the issuer that it actually is, has created opposition to effective regulation of the economy.
With the current political climate not favoring new money creation by Congress, the economy is increasingly dependent upon private bank debt to sustain funding for growth. This makes interest rates critical to the well being of the general economy. Higher interest rates mean fewer borrowers qualify and entire markets are adjusted to the preferences of the more affluent borrowers. This means larger homes and more feature-rich automobiles, the two big drivers of private sector debt.
Tight interest policies, meant to slow inflation, actually drive rent-seeking and inflationary pressure in the economy as prices of goods and services are adjusted to seek those more affluent buyers. As the less affluent lose market influence and their access to credit they are hit from the other end with higher prices, making inequality worse and concentrating wealth. The government could mitigate inflation much better by spending/creating money in the economy than by practicing austerity.
As new money gets added into the system though, its supply is increased and is more easily attained. For tomorrow, that means that the unit of currency will become less valuable and less desirable. This is an immutable rule of supply and demand.
This would only be true if the money supply were limited, such as with the gold standard. With a fiat currency that is controlled by the issuer, the limit to the overall money supply is much more flexible than simple quantity. Each resource, including labor, will make price adjustments according to its availability and the general cost of production. Shortages and supply chain problems may increase individual commodity prices, but not affect the overall cost of living significantly.
This, of course, depends entirely upon the level of dependence the economy has upon the commodity in question. Should labor or energy suddenly rise in cost it may affect pricing so broadly as to appear to be monetary inflation, such as we saw from the oil embargo in the ’70s. The more diverse an economy is the less risk of inflation it has.
Increasing economic uncertainties and low yields of traditional assets warrant a flight to safe-haven assets, like gold, maybe even Bitcoin. In order for investors and people with savings to preserve their wealth, they need to store it somewhere, where it won’t lose value in the times to come.
Both gold and bitcoin are “commodities”, not currencies. Their price is always denominated in a currency. Supply and demand control the price of scarce commodities, but that isn’t in any way tied to inflation. IF they make people feel more secure the demand for them may increase and be reflected in their price, but that isn’t reflective of anything in the economy beyond investment trends. Alex Jones probably has more influence on the price of both than does the Fed.
