How will these borrowed dollars be paid back short of real non-BS US economic expansion, which as I understand it is not presently occurring? If they are not actually paid back but just kicked down the road, are they still effectively borrowed, or are they effectively inflationary?

Not trying to troll, just trying to get a handle on the basics here.

So you make a good point. Yes, borrowed dollars CAN become inflationary. We will see this when PPP loans become grants. There are however, also deflationary effects happening at the same time due to the current pandemic...so which will dominate is hard to tell right now.

We are also experiencing supply and demand shocks, so we are experiencing higher prices in certain goods, but this is not inflation, we would expect that prices would return to normal when the constraint of the virus is removed.

I have a hypothesis that modern supply chains combined with weak labor make consumer inflation basically a thing of the past and we worry far too much about inflation that won't materialize in our normally operating global economy.

What is the difference between a borrowed dollar and an inflationary dollar?

> When the borrowed dollars are paid back, the money can be destroyed. Inflationary dollars by definition do not carry this trait.

I'm asking what the process of creating a borrowed dollar is versus the process of creating an inflationary dollar? Is there some financial instrument that the dollar is backed by that enables it to be paid back?

The Fed takes collateral, usually treasuries or bonds, and then gives dollars, these are borrowed dollars, backed by an asset. They carry an interest rate and will be paid back to the Fed. Once a dollar is paid back, the borrowed dollar is destroyed.

Inflationary dollars, which the US generally does not use this a lot, are dollars that the Fed would print and then give away. One way this is done is by paying interest on reserves, but this is not really a significant amount of money. In fact, I'd argue that we don't have enough inflationary dollars right now.

If the US was printing to pay back our debt; we don't do this, we borrow more, hence the increasing national debt, and also the reason that people keep giving the US money; we would see consumer inflationary effects. If the Fed just printed money and sent checks to people, again we'd see consumer inflationary effects. We generally don't do these things, instead we either borrow money or we take collateral and provide loans.

This doesn't mean that there aren't other effects in the economy by creating cheap borrowed money, but day-to-day hyper-inflation is not it.