laskerfan12: “I have seen no evidence that the money supply shrinks…” Well, I have. There is a second way the money supply can sink. When loans are in default and the underlying collateral “stinks” we have shrinkage of the money supply. It just goes up in smoke and disappears behind mirrors. Cullen has typed about this in general, many times. When this happens on a large scale, this is very difficult for the central banks or banks owned by sovereign countries. Deficit spending by the government can help to a degree getting production, profit margins, and market share (e.g. growth), going up again. But those stimulus funds should not be “borrowed” from other countries and should be used to make things the public needs (not lower taxes IMHO). A default at a national level would cause the underlying currency to likely go into a “death spiral”. We almost had this in 2009 worldwide. The central banks were able to fend off a collapse because they took the bad paper off the market. But, they were unable to jerk up the money supply and thus growth, via lower interest rates. It was slow and steady, however. I’m of the opinion that slow and steady economic growth, without the “business cycle” and it’s extreme ups and downs, is now possible……. But, people in charge have to understand where money comes from and where it goes. Thank you, Cullen. I think this is why Cullen is more optimistic than most about a Trump economy they will be managed by rich folks.