Fiat money is backed by our imagination, money is created out of thin air. It's an IOU from CB's, different countries have different processes but it's mainly the same... ECB owns about 40 % of Europe's debt, after the banking crisis in Europe that is gonna happen, ECB will own 60-70 % of Europe's debt within few years after they pass a law allowing ECB to buy more bonds from each country in EU... Most new government debt buyer in Europe is ECB, not much bids at those rates, only buyer in town. As soon as Government Debt lands on the countries Central Bank balance sheet, it is technically erased. Yes interest is paid, but majority goes back to it's own government. Doesn't need to ever be paid back, just moving interest in circle, Government pays interest to CB for the bonds, CB gives back majority of interest paid to Government, Japan style. BoJ owns 50 % of Japan's Government Debt
Usually erasing debt is extremely deflationary in most circumstance, but in theory if the BoJ wanted to remove 1 Trillion Yen of Government Debt from it's sheet, nothing would happen in terms of Deflation... They created 1 Trillion, it added Inflation due to more money chasing same amount of goods, but completely erasing it from it's sheet wouldn't cause deflation, nobody would eat the loss since they created it in the first place and it's on their sheet... That's the mockery of Fiat, it's not backed by anything... Why is there extreme poverty, why isn't it a more equal world ? Money isn't real... At the whiff of key strokes, Trillions can appear or disappear.
Within 10 years once debt is just too out of control, Central Banks will start erasing Government debt off their sheets, it won't cause deflation in terms of Assets and Money in Circulation... Question is, what happens after that ? Pboc and BoJ guaranteed do that sooner then most think... Federal Reserve will eventually go down that path, a law will be passed eventually allowing direct purchase of Government Debt, create 1 Trillion, goes to payroll and government budget, then let's say erase the debt 5 years later, how would that be Deflationary ? It wouldn't except for the faith in the currency... When Central Banks start creating and erasing debt, then it'll be a very unique era and we're rather close I believe... Asia is gonna start it, but how does it end ?
