The governments of all countries borrow from the future to provide currency today. Deficit spending is the common theme. This is for two reasons. Real money is in too short a supply to fund the industrial and social needs of the population. The government has no choice but to pay for such requirements in order to retain power. To ensure that laissez faire democracy remains the government system of choice basic minimum services must be provided by administrations of all political persuasions. Parties of the left and of the right all agree that roads, railways, ports, airports and the like plus health and welfare systems must be available for national well being and progress. Only the methods of achieving these objectives differentiate political parties.
Almost all countries now operate a fiat currency scheme. Since President Nixon decoupled the dollar from gold in 1971 this includes the U.S.A. Fiat currency, that is currency by decree, is now the rule over most of the world. Governments have simply declared that the pieces of paper now referred to as money are, in fact, money. This declaration is as invalid now in the U.S.A. as it was when it was first made. In fact the pieces of paper circulating as money are probably unconstitutional.
The details of the system of currency creation are quite simple. What follows is the process in the USA. It is basically the same in any other country. The government issues a promise in the form of a bond to pay to any bond holder the nominal amount of the bond plus interest at a stated time in the future. Commercial banks are required by law to bid for these bonds at regular auctions. The government thus acquires currency with which it finances its various departments. The Federal Reserve then buys these bonds from the banks and on-sells them for profit. It is worth remembering that the Federal Reserve Bank (R3) is not a government organisation or instrumentality. It is a private organisation with some special privileges. One of those privileges is the right to supply bank notes which it does as necessary to banks.
With cheques from the Federal Reserve the banks are now free to carry on their business. It is fractional reserve banking that is the business of the banks. It is necessary here only to state it is by this system that banks can increase the currency supply.
Government departments, now funded can get on with their works. This includes paying their employees who, in turn, must pay tax to the government. Tax is the only return the government can look to in order make good its promises on its bonds. Even with revenue raised from companies and the sale of goods and from many other sources the tax received is not nearly enough to repay the bond issue debt. The tax rate would have to be about 100% to come close to covering the bond issue. Clearly no-one is willing to work for nothing.
There is only one way to solve this problem. The government must borrow more from the future by issuing more bonds. So the debt grows. There is no way to stop this and retain fiat currency for use by the general public and for governments to satisfy the needs of the population. The pace of growth of the debt can be slowed by increasing taxes or cutting back on services but the debt will always increase.
The Federal Reserve Bank