There are ultimately only three ways that the U.S. government can pay for its spending:
- Print/create more money. By printing money, we ensure that inflation is the natural result. Inflation is defined as "a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency" (source: Dictionary.com). Inflation is considered to be a "hidden" tax because it robs the middle class of its spending power by devaluing the currency. Congress loves it, because while its spending is the primary cause, it can insulate itself from the blame or the consequences!
- Raise taxes. This pays the bill, and is the most responsible way to pay for government spending, but it also stifles economic activity at some point.
- Borrow the money. Even if the government borrows the money needed to pay for a deficit, that borrowing must also be repaid at some future date. That borrowed money can only be repaid by -- you guessed it -- (#1) printing more money, or (#2) raising taxes.
