The US is also more financialized than Europe in the sense that our stock market is big enough to affect our economy rather than just the other way around. We’re so consumption-oriented, stock-oriented, and reliant on the foreign sector recycling our trade deficits into our capital markets, that the “tail can actually wag the dog” in this sense.

In other words, liabilities are collateralized by other liabilities, all the way down.

In other words, claims for dollars (debt) grows far more quickly than the economy’s ability to generate dollars, and is far larger than the amount of dollars in existence. When this becomes too much of a problem, the amount of base money is simply increased by the central bank.

The credit-based global financial system we have constructed and participated in over the past century has to continually grow or die. It’s like a game of musical chairs that we have to keep adding people and chairs to in order for it to never stop. This is because cumulative debts are far larger than the total currency supply, meaning there are more claims for currency than there is currency. As such, too many of those claims can never be allowed to be called in at once; the party must always go on. When debt is too big relative to currency and starts to get called in, new currency is created, since it costs nothing other than some keystrokes to produce.