When a government spends beyond its means, the options for paying for the spree are unattractive. It can burden the populace with higher taxes, or it can wipe out a portion of creditors' wealth by inflating the money supply, repaying debts with a debased currency. Or it can do both. The United States is avoiding these choices by borrowing enormous sums, bringing federal debt to almost $17 trillion, at interest rates that the Federal Reserve has managed to keep very low. For now.
-Article by Reuven Brenner and Martin Fridson
Read full article (subscription required): The Wall Street Journal, March 25, 2013