They can certainly issue new dollars to pay them, but if they flood the market with new dollars, the value of the dollar drops, and inflation rises and market loses even more confidence in the value of the dollar.
The value of having a stable economy with stable dollar was ability to issue bonds on that amount. Nobody wants to get Russian ruble bonds atm. That isn’t quite the case for the USA, but the market of buyers has shrunk.
The reduction in value of the dollar relative to other currencies would occur pretty certainly and that’s something some in the Trump admin want because it would make US exports cheaper and therefore they expect it to reduce trade imbalance. Whether the extra dollars result in inflation is an open question. Increasing money supply does not automatically produce inflation. Inflation only occurs if the economy is at absolute capacity, that’s no more additional units of goods and services could be produced or rendered. This is rarely the case. In this case we’re talking about new dollars appearing outside of the US. Unless the US cannot export more units of goods and services than they do today, the prices of those goods and services wouldn’t increase as a result of the extra dollars. Instead the extra dollars would allow other countries to buy more goods and services from the US. E.g. more MS Azure cloud contracts, more OpenAI service contracts, more soybean, etc. That’s what Bessent wants. Whether these countries would do that or decide to just stash the dollars, or burn them, or use them to trade with other countries is an open question.
They can certainly issue new dollars to pay them, but if they flood the market with new dollars, the value of the dollar drops, and inflation rises and market loses even more confidence in the value of the dollar.
The value of having a stable economy with stable dollar was ability to issue bonds on that amount. Nobody wants to get Russian ruble bonds atm. That isn’t quite the case for the USA, but the market of buyers has shrunk.
The reduction in value of the dollar relative to other currencies would occur pretty certainly and that’s something some in the Trump admin want because it would make US exports cheaper and therefore they expect it to reduce trade imbalance. Whether the extra dollars result in inflation is an open question. Increasing money supply does not automatically produce inflation. Inflation only occurs if the economy is at absolute capacity, that’s no more additional units of goods and services could be produced or rendered. This is rarely the case. In this case we’re talking about new dollars appearing outside of the US. Unless the US cannot export more units of goods and services than they do today, the prices of those goods and services wouldn’t increase as a result of the extra dollars. Instead the extra dollars would allow other countries to buy more goods and services from the US. E.g. more MS Azure cloud contracts, more OpenAI service contracts, more soybean, etc. That’s what Bessent wants. Whether these countries would do that or decide to just stash the dollars, or burn them, or use them to trade with other countries is an open question.