The government's fondness for spending without taxing implies, through the government budget constraint G = T + ΔD + ΔM, some combination of the compulsions to borrow and to print money.

In the latest installment of the Econ Journal Watch podcast series , I talk to Jeff Hummel about the intersection of debt finance and seigniorage. Will Greece, Spain, et al., default? Or will the ECB try to inflate away its fiscal problems? What about the US? I'm worried about inflation, but Hummel argues that default is a political equilibrium: it stiffs foreign creditors without angering domestic money-holders.