Everywhere that I look the history of U.S debt always has a massive increase during WWII, and then a dramatic decrease after the war and a slow decline of our debt, which then shot up around the end of the 70s. However, I was told to believe our government printed money like crazy during the 60s and 70s to try and get us out of stagflation. How can both statements be true (if they are true?)? Did this mean as our government was paying off war bonds and such, banks just took them? Any help would be appreciated. Thanks.
You seem to be equating government debt with monetary expansion. However money is created when banks extend loans (on the basis of reserves) to anyone, not just to the government… For example, the recent propensity for individuals in the U.S. to borrow money in order to build houses, even when those individuals had no salary/income, allowed for a significant expansion in the total quantity of money in circulation without any requirement for government to go further into debt. As it happens, government also went substantially further into debt at the same time but my point is that growing government debt is not absolutely necessary in order to acheive an increase in the total quantity of money in the economy. All that is required is for the central bank to increase the monetary base and for banks to find willing borrowers to which they can extend loans on the basis of those new reserves.
Okay, but what exactly happened in the 60s and 70s? (not being critical but wondering). Our government was paying off our debt, but we were “inflating” and spending money on vietname and great society programs.