Why is the monetization of debt less likely in the U.S.?

Why is the monetization of debt less likely in the U.S.?

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Expert Solution

Monetization of debt implies that the central bank will be printing more currency and will be converting the accumulated debt into credit. This will free up the capital and will put the same into circulation. In this manner the central bank is actually purchasing the government job and in turn, increasing the circulation of money.

This is likely to increase the rate of inflation because it is conditioned under unchanged inflationary expectations, the possibilities of hyperinflation cannot be rejected. United States is unlikely to use monetization for financing the debt because dollar is the global currency and it will become weaker once monetization is done. Financial stability, creditworthiness of the nation and speculation can result in a macroeconomic disequilibrium. Due to these reasons, central bank is unlikely to take this action, unless there is no other option left for the overburdened debt.

Rahul Sunny answered 10 months ago

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