Increase in the money supply financing public expenditure

Many will tell you that it is not taxation but debt that finances
government spending; it therefore does not crowd out private spending. I
argue that public debt crowds out private borrowing and
investment. Many of my anti-capitalist colleagues say that the government
spending does not crowd out private investment because interest rates
are weak. So there is a lot of money to finance the private
investment. Unfortunately, in order to protect depositors, and the
government guarantee of these deposits, banking regulators have
increased credit underwriting requirements for banks. Therefore,
they do not lend to small and medium enterprises.

Interest rates are low because the Fed prints money and therefore dramatically increases the money supply, making money cheaper. The irony of artificially low interest rates is that they reduce the incomes of retirees and savers. This in effect displaces money and consumption from savers and transfers it to the government, which borrows at artificially low rates.

{mosads}The business community realizes that increasing the money supply funds government spending and that the private sector eventually has to pay the price. As a result, the business community is not investing as much as it should because it worries about inflation and higher future taxes to pay for borrowing. Since business investment takes time to pay off, the businessman who invests now and expects a return in two or three years knows that his taxes will rise as tax breaks expire. Bush tax and the new 3.8% ObamaCare tax on unearned income. Thus, the businessman does not invest today because he knows that his return will be considerably reduced within two years.

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