Quick Summary

For over a decade, cheap money and low interest rates shaped global finance—but instead of fueling private borrowing, it supercharged government debt. Through quantitative easing and massive pandemic spending, governments borrowed trillions, leaving taxpayers with the bill. Today, as interest rates rise, America faces the challenge of managing record-breaking national debt, inflation risks, and limited policy flexibility. This debt isn’t abstract—it affects taxes, inflation, and the government’s ability to respond to future crises

For years, we’ve heard about “cheap money” – a time when borrowing costs were incredibly low.

But things are changing, and it’s important to understand why.

In this guide, we’ll explore what cheap money means, how it’s affected our economy, and why government debt is now in the spotlight.

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Low interest rates didn’t lead to increased private borrowing; instead, government debt surged.

The Federal Reserve’s bond-buying program (quantitative easing) significantly increased government leverage.

Growing government debt could impact future economic stability, inflation, and policy decisions.

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What is Cheap Money?

When we say money is “cheap,” we’re talking about low interest rates.

For over a decade, interest rates have been incredibly low.

This means it’s been inexpensive to borrow money, whether you’re a person looking to buy a house or a business wanting to expand.

Normally, when money is cheap, people and businesses borrow more.

They take out loans, invest in new projects, and spend more. At least, that’s what economists expect to happen.

A Surprising Twist

But here’s where things get interesting. Despite these very low interest rates, we haven’t seen the surge in borrowing that many expected.

In fact, something quite different happened, especially during the recent pandemic.

During the COVID-19 crisis, governments around the world gave out a lot of money.

They sent checks to families, boosted unemployment benefits, and supported businesses.

This was meant to help people and companies survive the economic shock of the pandemic.

Surprisingly, this government support actually made many households and businesses financially stronger.

Instead of taking on more debt, many people used the extra money to pay off existing debts or save for the future.

Companies, unsure about the future, often held onto cash rather than borrowing to expand.

So Where’s All the Debt?

If people and businesses aren’t borrowing much, even when it’s cheap to do so, where has all this cheap money gone?

The answer: to the government.

Governments have been borrowing a lot of money.

They’ve done this to pay for all those support programs during the pandemic and to help the economy in other ways.

One big way governments have been using cheap money is through something called quantitative easing, or QE for short.

It sounds complicated, but the idea is pretty simple.

Understanding Quantitative Easing

Imagine the government as a giant bank. When it does QE, it creates new money and uses it to buy bonds.

Bonds are like IOUs – they’re a way for governments to borrow money.

By buying lots of bonds, the government does two things:

It pumps more money into the economy, which can help during tough times.
It keeps interest rates low, making it cheaper for everyone to borrow.

The Federal Reserve, America’s central bank, has conducted extensive QE.

They did this during the 2008 financial crisis and again during the COVID-19 pandemic to prevent the economy from crashing.

The Government’s Growing IOU

However, all this borrowing means the government now owes a lot of money. It’s like the government has taken out a massive loan.

You might wonder: if the government is borrowing from itself (remember, the Federal Reserve is part of the government), does it really matter?

The answer is yes, it does.

Even though it might seem like the government is just moving money from one pocket to another, this debt is real.

The government will need to pay it back eventually. As the saying goes, “The check always comes sooner or later.”

Why Should We Care?

The government debt affects all of us in several ways:

First, as the government owes more money, it might have to raise taxes in the future to pay it back.

This could mean less money in your pocket.

Second, if the government is spending a lot, it might lead to inflation.

Inflation means the cost of things increases, so your money doesn’t buy as much as it used to.

Third, if the government owes a lot of money, it might have a harder time helping out the next time there’s an economic crisis.

It’s like if you’ve maxed out your credit cards – it’s tough to borrow more when you really need it.

What Happens Next?

As we move away from this period of very cheap money, things will change.

Interest rates might go up, making it more expensive to borrow money.

This could affect everything from mortgage rates to business loans.

The government will also have to figure out how to manage its debt.

This isn’t easy and there’s no perfect solution. They’ll need to balance paying back what they owe with continuing to support the economy.

The Big Picture

The story of cheap money and government debt shows us how connected everything is in the economy.

Decisions made by central banks and governments don’t just stay in Washington D.C. – they ripple out to affect our daily lives.

As we’ve seen, the government took on a big role during recent crises, borrowing heavily to keep the economy afloat.

Now, as we possibly near the end of the cheap money era, it’s important to stay informed and consider how these changes might impact your financial future.

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Now Is The Time To Get Informed! America is losing its status as the world leader. A number of nations want the dollar replaced as the world’s reserve currency. Should that happen, you’d better have your money in assets that hold real value.

With the printing presses on stand-by, the Fed could easily wipe out even more of the value of each dollar in your retirement account. The $34-trillion in debt saddling our nation only adds fuel to the fire. You need a hedge against the financial insanity.

FAQs

What is government borrowing?

Government borrowing happens when a country raises money by issuing bonds or taking loans to fund spending beyond tax revenues.

Why did government debt increase during the pandemic?

To support households, businesses, and healthcare during COVID-19, governments borrowed heavily, funded by quantitative easing and low interest rates.

How does government borrowing affect inflation?

Excessive borrowing can fuel inflation by increasing money supply and government spending, reducing the purchasing power of everyday consumers.

What is quantitative easing in simple terms?

Quantitative easing (QE) is when central banks create money to buy government bonds, lowering interest rates and boosting economic activity.

Why should ordinary people care about government debt?

High government debt can lead to higher taxes, rising inflation, and fewer resources for future crises, directly impacting personal finances.

About the Organization

At Legacy Alliance, we help individuals and communities navigate financial uncertainty with strategies built for stability and long-term growth. Our mission is to provide education and tools that protect wealth, hedge against inflation, and create financial legacies that withstand economic cycles.

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