I’ve said the U.S. is caught in a debt death trap. Monetary policy won’t get us out because the velocity of money, the rate at which money changes hands, is dropping.
Printing more money alone will not change that.
Fiscal policy won’t work either because of high debt ratios. At current debt-to-GDP ratios, each additional dollar spent yields less than a dollar of growth. But because it must be borrowed, it does add a dollar to the debt. Debt becomes an actual drag on growth.
The ratio gets higher, and the situation grows more desperate. The economy barely grows at all while the debt mounts. You basically become Japan.
The national debt is $27.8 trillion. A $27.8 trillion debt would not be an issue if we had a $50 trillion economy.
But we don’t have a $50 trillion economy. We have about a $21 trillion economy, which means our debt is bigger than our economy.