Let’s take a look at an often-repeated idea that is popular in the gold and alternative investing communities. The government possesses a printing press. Therefore, it will never default. It will just inflate its way out of the debt. It will devalue the dollar.

The government does not set the value of the dollar. And it has no mechanism to set it. So, logically, it has no mechanism to reset it. It cannot devalue it. In the same way, you cannot lower yourself down by your bootstraps since you are not lifting yourself up by them in the first place.

We must emphatically state that the government does not print. It borrows. Congress does not have a printing press, to create greenbacks. It has a Treasury that can sell bonds to cover whatever payments the government is obligated to make that it has not got tax revenues for. Over the past year, for example, the government increased its debt by over 630 billion dollars.

This leads us to inflation. We have a different view than the mainstream. We define inflation as the counterfeiting of credit. In legitimate credit, the borrower has both the means and intent to repay. But clearly in the case of perpetual government deficits, these elements are lacking. This is inflation. Not the changes that may result to consumer prices. Not the change in quantity of dollars. The fraud itself is the root of it, and therefore properly deserves the moniker inflation.

The Federal Reserve, of course, is a key participant in this monetary inflation scheme. Does the Fed have a printing press? Does the Fed print?

Like any bank, the Fed borrows to fund its purchases of interest-paying assets. It earns a spread between what it pays (currently about 1.25%) and what its asset portfolio pays (over 2%). The commercial banks currently deposit over $2.1 trillion in excess reserves, and the Fed’s total liabilities are over $4.4 trillion including Federal Reserve Notes (on which the Fed pays zero). Unlike any commercial bank, there is a law that obligates us to treat the Fed’s liabilities as if they were money.

This last fact is what makes the inflationary scheme so dangerous (not the possible effect on consumer prices). The Fed borrows to lend to the government (and manipulate the interest rate). This means: the Fed’s liability, the dollar, is only good so long as the Fed’s asset, which is the government’s liability, is good. Please re-read that and think. This one statement is the undoing of much of modern monetary economics.

Of course, with the Fed’s liability being treated as money by nearly everyone—including those who oppose the existence of the Fed, and who speculate on alternative monetary assets like gold and bitcoin—the Fed is in a unique position. Demand for its liability is unlimited. That is, whatever it wants to borrow, willing lenders are lined up. Not only that, it gets better!