Only the Fed and commercial banks can create new, spendable money out of thin air. In contrast, credit creation, like in shadow banking, simply reallocates existing money from a saver to a spender. This distinction is crucial for understanding economic stimulus and risk.

For the past decade, the Fed was the primary driver of liquidity. Now, the focus shifts to commercial banks' willingness and ability to create credit to fund major initiatives like AI and onshoring. Investors fixated on Fed policy are missing this crucial transition.

All money is created as debt (credit) from private banks, but the interest required to repay that debt is never created. This forces a systemic need for perpetual growth through new debt to cover old interest payments. If the system stops growing, it collapses, creating a structural incentive for war and expansion.

When a bank loan is repaid, the money created for that loan ceases to exist; it isn't just transferred. Widespread debt paydown, often seen as financially responsible, reduces the overall money supply. This directly shrinks GDP and can trigger recessions.

In a model where government spending injects new money into the system, government debt is intrinsically linked to GDP growth. The idea that this debt can grow unsustainably faster than the economy is flawed, as the debt itself is a mechanism for that economic growth.

The vast majority of global trade is funded by US dollars that exist outside the US, known as Eurodollars. This system operates beyond the Fed's direct control and relies entirely on trust. Money is created when banks extend credit and destroyed when they don't, making the global economy inherently fragile.

Government projections showing exponential, unsustainable debt growth are flawed because they model a straight line forward, ignoring historical data. As economist Steve Keen points out, debt-to-GDP ratios have always fluctuated in cycles; modeling a continuous, ahistorical trend is inherently misleading and creates false alarms.

Small Federal Reserve rate hikes are largely symbolic. The real economic momentum comes from the private sector, which is deploying trillions in capital. This massive scale of spending and debt issuance dwarfs the impact of a 25 or 50 basis point change from the Fed.

The Federal Reserve's monetary policy is less effective today. The growth of private credit and large firms self-financing investments (like in AI) means significant economic activity is insulated from traditional bank lending channels, reducing the impact of rate hikes.