[mattobrien]

The Fed has tools like interest on reserves, reverse repos and term deposit facilities to make sure that all of the excess reserves on bank balance sheets don't turn into actual price increases.

Austrian economists conflate increases in the money supply and price inflation, but it's not necessarily true. In fact, mainstream New Keynesians (that includes conservatives like Greg Mankiw) have predicted for years that increasing the Fed's balance sheet wouldn't increase inflation. They have been right.

[grandalf]

But this is due to the larger forces of supply and demand for US treasury bills. So it's the US's role as an empire that makes its sovereign debt demanded by nations with less solid foundations.

The US enjoys this position largely b/c of its size but also b/c of the frequent policymaking folly that occurs in other nations.

The only thing that can impose true discipline on this process is the existence of competition.... it's the only thing that could decrease demand for US Treasury bills.

It's obvious that we're not currently experiencing hyper-inflation, but the configuration of the world that will allow the trend to continue becomes less certain the further things get extended.

Imagine someone issues you a credit card with a $1 per month minimum payment. As long as you can keep getting the limit increased you'll surely be able to make the payment each month, no matter what other spending you do. The US is able to keep borrowing and borrowing, and its creditors are very lenient b/c they lack a better option.

[Symmetry]

The debt situation might get out of hand, but that doesn't necessarily mean we're headed for inflation. The US has gone for hundreds of years without a default[1] and I'm sort of proud of that as a US citizen, but if worst came to worst we could always just default - unlike, say, 1920s Germany.

[1] There was a few payment in the 1970s that was slightly late due to a clerical error, but that hardly counts.

[cperciva]

Removing the ability to exchange US dollars for gold was arguably a form of default.

[grandalf]

I agree that it doesn't necessarily mean we're headed for inflation, but I think the counterfactual is that the US is headed for even more dramatic economic hegemony.

[rjsamson]

Yup - in theory the two can be related, but in the real world its a lot more complicated than that.