The Government of the United States Will Print Money to Pay Its Debts

Our Government Will Devalue Our Money

In last week’s post, I talked about the decline in the value of the dollar due to the loss of its central place in the international oil market. I pointed out that you will become poorer because your dollars will lose purchasing power. However, that is not the whole story. It gets worse. Much worse. We should expect that our government will deliberately devalue our money in order to be able to pay the interest that it owes on our national debt.

We Have Lived on Borrowed Money For Decades

As long as the value of the dollar was underpinned by the fact that everyone needed dollars buy oil, and as long as Saudi Arabia was committed to investing its oil profits in U.S. treasury bonds, the U.S. government was able to borrow money at extremely low interest rates to finance its operations. That in turn made it possible for our government to lower the taxes we paid over and over again while maintaining at least a semblance of domestic services and supporting a worldwide network of military bases along with a navy that patrolled all of the world’s seas. In short, we have lived on borrowed money for decades.

Now Our National Debt Has Become Unmanageable

Now, the debt has become unmanageable just at a time when the government’s borrowing cost has risen due to the declining demand for dollars. The government is now borrowing money just to pay the interest on the national debt – not to reduce the principal – just to pay the interest.  In addition, a recent article reported that the United States’ government is now formally insolvent:

The U.S. government is insolvent. That’s not hyperbole — it’s the conclusion drawn directly from the Treasury Department’s own consolidated financial statements for fiscal year 2025, released last week to near-total media silence. The numbers: $6.06 trillion in total assets against $47.78 trillion in total liabilities as of September 30, 2025. Importantly, the $47.78 trillion in reported liabilities does not include the unfunded obligations of social insurance programs like Social Security and Medicare — those are disclosed separately in the off-balance-sheet Statement of Social Insurance (SOSI).

Our Government Will Print Money to Avoid Defaulting 

A private business in this situation would have to default on its debts. It would declare bankruptcy, and its creditors would receive only a small fraction of what they were owed. In contrast, a national government does not need to default because it can print as much money as its needs to pay its debts. Our government has debts of just under $40 trillion. The interest payments now come to about $980 billion per year, and they are rising. We are now spending more on interest payments than on our military forces. We recently started a costly war, and last year, Congress passed a big tax reduction, but don’t you worry. When the interest payments are due, the Federal Reserve will be able to print as much money as the government needs to pay the interest.

Printing Money Causes Inflation

However, printing money to cover the debt has the side effect of creating inflation. When new money goes into circulation, but no new goods or services are produced, prices rise and the value of the dollar goes down. Nevertheless, printing money to cover debts is the solution that has been used for more than a century by all governments that have faced unmanageable debts, and we should expect that our government will do it this time, too. It will have to print money because the current path of borrowing to pay the interest is unsustainable, and the alternative of defaulting is unthinkable. U.S. treasury bonds are the foundation of both the American and the world’s financial systems, and defaulting would be a disastrous shock. Printing dollars will avoid the shock, and the decline in the value of the dollar will be a gradual process that the world can adjust to.

Act to Preserve the Value of Your Retirement Account

You can adjust to it, too but only if you understand what is happening. If you have retirement accounts, savings accounts in dollars or other wealth that needs to be preserved, I strongly suggest that you use the internet to inform yourself of the alternatives that are available to you,  and I also recommend that you talk to a financial advisor about what you can do to preserve the value of what you have. The devaluation of the dollar will not happen all at once. It will be a gradual process. So, you have time to act, but you do not have time to waste.