Excessive borrowing leads to inflation
Excessive borrowing, whether by the Federal Reserve or private banks, to finance domestic spending can severely damage the economy through high inflation.
History has shown us the dangers of excessive borrowing. Many countries have mistakenly equated the printing of banknotes with economic productivity. While this approach may provide short-term relief, it ultimately leads to long-term instability. For instance, Germany’s hyperinflation in the 1920s and the economic turmoil caused by loose monetary policies in the 1970s resulted in significant job losses and economic downturns.
Borrowing, in essence, involves increasing the money supply, but without a corresponding increase in goods, the economy risks currency devaluation both domestically and internationally. When the supply of money exceeds the production of goods, inflation erodes the value of currency, ultimately diminishing people’s savings.
The foundation of a healthy economy is built on hard work and production, not on the “monetary illusion” of printing money. It is a dangerous misconception to believe that borrowing alone can finance the production of green goods that do not yet exist.[1]