How much room the US has to bail out states

What determines the limit is when the printing and borrowing of the federal state reach a point where inflation starts going beyond the normal range. What happens in normal times is 80-90% of the credit expansion is through the private sector. So the federal government cannot borrow too much without driving up rates.. and at the same time with the expansion in the private sector there is juicy new revenues coming in that smooth over any problems.

For bailing out states it looks to me like there is no limit anytime soon for the federal government. Because in the USA the states only have a total of 1.1 trillion in debt. The federal government has other bigger concerns for the deficit, it looks like it will run like 2 trillion just this year.

Because economic growth and technological progress is an exponential function, there is going to be more and more room to print each year. The US government wants the private sector to pick up and take things on its own, and then bring down the deficit when the private sector is flying high. As long as the problem is just a private sector deleveraging as the root of the problem, then the situation is always under control.


However it appears to me this crisis will seperate the men from the boys. Like Britain is trying to use the same strategy as America and the EU, but we are seeing UK inflation is creeping up, nearing getting out of contol. That is when you start asking is this more than just a private sector deleveraging? A good example to clearly show it is Zimbabwe. That nation took away the farms from the white Rhodesians, and over the following decade it led to a greater than 80% decline in food production. The country's main export. If the money supply even remained the same, but production hugely fell there has to be inflation. Same amount of money chasing less goods.

Thats what scares me about the UK, our business and government leaders have chased so much production out of the country, that it can be that same amount of money chasing less goods.

The US has a further advantage, in that so many nations purposely buy US dollars to prop up the dollar and build reserves. So that could be one change, if in the future nations turn away from the US dollar, the US would be in a much tougher situation.

In the case that a nation is having inflation getting out of hand, and there is defaults going on.. then it has no choice but to let defaults go forward.. and make cuts. Probably would never happen in a democratic society though, no politician is going to deliver painful cuts to anyone. The Tories show that clearly, running and elected on a cutting campaign, and still not going to do it. So the likely case then is either partial default, turn to the IMF, or hyperinflation.