Every rescue has to be bigger than the last one because each rescue adds to the very problem it’s treating. A rescue is new money and credit, and new credit is new debt. That debt joins the pile that has to be kept serviceable the next time trouble comes. Meanwhile technology keeps making things cheaper at an accelerating rate, so the downward pull on prices that policy has to cancel out is stronger every year. And each new pound of debt produces less growth than the one before it. So the gap to fill is wider, the pile to defend is taller, the medicine is weaker, and the patient is more fragile. Multiply those together and the next intervention must be larger just to keep the picture looking stable. Nothing in that loop has a settling point, because every part of it feeds the others.
This loop is the engine room of the argument. The cost of keeping prices up is the abundance that technology created and you never received. So this system changes, one way or another. What’s open is how, and who pays on the way.
What it takes to hold prices up
Most money is loaned into existence. When a bank lends, it creates the deposit it lends to you. Most of those debts are nominal [fixed in pound terms, so the amount you owe doesn’t change when prices change]. If prices fall broadly, wages and business revenues follow them down, but those repayments don’t shrink. The debt takes a bigger bite of everyone’s income, yours, your employer’s, the bank’s, the government’s. Push that far enough and defaults cascade through the chain of lenders, because each lender’s asset is someone else’s promise to pay. That’s why a debt-based system treats falling prices as a mortal threat, even though cheaper goods are exactly what better tools should deliver.
The starting line isn’t zero. Because technology keeps improving, the natural drift of prices is down. So when a central bank targets 2% inflation, it doesn’t need two points of push. It first has to cancel whatever technology would have taken off prices that year, then add two on top. If the natural fall is 3%, the system has to engineer five points of upward pressure. If technology accelerates and the natural fall becomes 5%, it has to engineer seven. It’s like walking on a moving walkway that runs backwards and speeds up. Standing still means walking faster every year.
The push itself is made of ordinary policy moves. Interest rates are cut so households and firms borrow more. Governments run deficits [spend more than they raise in tax and borrow the difference]. Central banks buy bonds with newly created money [quantitative easing, QE] to keep borrowing cheap. Every one of those channels ends in the same place. Each one either creates new claims on future income or makes creating them cheaper, and both leave more debt behind.
The gears that make it compound
Gear one. The gap widens on its own. Software already pushed the cost of copying anything digital toward zero. AI is now pushing the cost of knowledge work the same way, and robotics is starting on physical work. That downward force on prices compounds, because better tools build better tools, so even before you count any debt, the offset needed grows every year.
Gear two. The pile grows, and the floor rises. Each rescue’s borrowing joins the stock of debt. That stock never meaningfully shrinks, and it has to be kept serviceable. Worse, the share and house prices the rescue propped up become the new level that has to be defended, because loans are secured against them. If cheap credit lifted house prices, letting them fall back would blow holes in the banks, so last year’s emergency level becomes this year’s baseline. There’s also a mechanical trap. After a price spike, prices would naturally fall back the next year, and unless the new money keeps coming, the price index [a basket that tracks consumer prices over time] reads that as deflation. You have to keep pushing against the level your own last push created.
Gear three. The medicine weakens. In the two decades to about 2020, the world added roughly 185 trillion dollars of new debt to get about 46 trillion dollars of growth. Call it four borrowed pounds for one pound of growth. The ratio is the same whichever currency you count in. That ratio worsens because more of each new pound goes to servicing and rolling over old promises rather than building anything. Cheap credit also keeps firms alive that competition should have replaced [zombie firms, companies that survive on cheap borrowing rather than real profits]. Those firms sit on capital and talent that better firms would have used, which drags on the very growth the borrowing was meant to buy.
Gear four. The pain threshold falls. Because markets have learned the rescue comes every time, they build on top of that expectation. Companies borrow to buy back their own shares. Investors take more risk because when the bets fail, the rescue passes the loss to savers and wage earners, through the new money it takes to fund it. The whole structure becomes calibrated to permanent support, so ever smaller wobbles now demand a rescue. The system has got to the point where merely signalling withdrawal sets off the crisis. When central banks hinted at shrinking support, markets convulsed until policy reversed. You can’t quietly step off the walkway, because announcing the exit causes the exact collapse the rescue was meant to prevent.
And a fifth gear. The rescue speeds up the walkway. When policy pushes up wages, rents, and input costs while customers still demand lower prices, automation pays for itself faster. Firms replace labour with software and machines sooner than they otherwise would. So the intervention accelerates the deflationary force it exists to fight, which widens next year’s gap again. The fifth gear is what feeds the first.
The gears multiply each other. The next rescue equals a wider gap, times a taller pile, times weaker medicine, times a lower pain threshold. Every term in that multiplication is fed by the previous rescue. That’s why it compounds rather than settles. Rescues went from hundreds of billions in 2008 to trillions in 2020, and during the pandemic response the money created in a year was roughly double the entire annual profits of every US corporation combined. Taxes couldn’t fund that scale. Only newly created money could, which tells you what the system actually runs on.
Where the bill lands
The bill lands in four places.
The first is invisible, the price falls you never got. Technology made photography, navigation, communication, and computation nearly free, and it’s been cutting the actual cost of producing food, energy, and goods the whole time. In a free market those gains would have reached you as a falling cost of living. Instead the expanding money supply absorbed them, so prices stayed flat or rose. Against what prices should have done, your yearly loss is the fall you didn’t receive. The rise you paid on top of it is the second bill. You worked just as hard, and the saving existed. It just never arrived.
The second is your wage and your savings. Inflation and wage deflation are the same event seen from two sides. Your pay rises slowly, so it lags the money creation. Your cash savings are guaranteed to lose purchasing power [what your money can buy], which forces you to become an investor and take risk just to stand still. A nurse who saves in cash falls behind through no fault of her own.
The third is the transfer. New money enters through the markets for shares and property and reaches the people who already own them first, before prices adjust for everyone else. The landlord’s house and rents rise while the tenant’s pay lags. That’s the mechanism working as designed, and it widens the gap between owners and earners every cycle, feeding much of today’s political anger.
The fourth is the future. Capital flows to whatever policy props up, not to what serves people. Houses stop being shelter and become savings vehicles, pricing out the young. Fragility builds. And as stress rises, the system defends itself with more centralised control, because a structure that must prevent honest prices eventually has to manage narratives and behaviour too. The two doors at the end of this road are a depression if support stops, or escalating political repression if it continues. History’s versions of this story, from Weimar [Germany’s 1920s currency collapse that preceded Nazi rule] onwards, ended in resets, strongmen, or wars.
If the mechanism is right
If this mechanism is right, the collision steepens from here, because AI is the strongest deflationary force we’ve ever built and it’s compounding. The ordinary exits are blocked. The debt can’t be repaid in real terms [after allowing for what money will buy] at this scale, default is the very thing the rescues exist to prevent, and growing out of it fails because each unit of debt buys less growth. And when creative destruction [the market process where better methods and firms replace old ones] is suppressed in markets, it moves up a level, to the money itself. Both doors end in the same place. The eventual reset happens at the money itself, the stick everything else is measured against.
That’s why my conclusion is a base money [the foundation money everything else is priced in and settles to] whose supply can’t be expanded. Under a fixed money, deflation is allowed to reach people as cheaper life, debts shrink in importance because saving works again, and the rescue machine isn’t needed because nothing depends on prices rising.
Five ways this could be wrong
“If the system needed exponentially bigger rescues, it would have collapsed already.”
It’s been failing in slow motion. Two things masked it. The same tech deflation it extracts kept a lid on visible consumer prices for decades, and reserve-currency demand for dollars [the dollars the rest of the world, including its central banks, holds for trade and savings] spread the cost across the whole world. Both are wearing thin as the money creation grows. You’ve been watching that happen since 2020.
“You can taper once growth returns.”
Each attempted exit so far has convulsed markets, and the convulsions have forced policy back, because positions built with borrowed money on the promise of support have to be marked down and sold the moment the promise wavers. A system you cannot even signal an exit from is hostage to the leverage it built.
“Growth will outpace the debt.”
The arithmetic runs the other way. Four pounds borrowed for one pound of growth, and the ratio worsening, while the interest on the pile compounds regardless.
“The rescues are worth it, because deflation would be worse.”
Separate two deflations. A debt-collapse deflation, where prices fall because credit is imploding, is destructive. Productivity deflation, where prices fall because we got better at making things, is cheaper life, and people still buy phones and food when they expect them to be cheaper next year. The rescues defend the debt design, not your living standards. Debt of this design can’t coexist with accelerating technology.
“A Volcker moment could purge it, the way high rates did in the early 1980s.”
It can’t be repeated. Back then the debt was mainly with households and companies rather than the state, so crushing rates punished borrowers, and the state was well enough placed to apply the cure. Now the state itself is the over-indebted party. Raising rates enough to purge the system would send its own interest bill through the roof, and it would have to create new money to pay that bill. The purge would end in more money creation, not less.
So when the next rescue arrives and it’s larger than the last, you’re watching the design work. Nobody has to be incompetent for the rescues to keep growing. A system built on debts that need rising prices, colliding with technology that makes everything cheaper, has exactly one move, and the move gets bigger every time it’s used.