Nothing Stops This Train: The Exponential Nature of Modern Money

We built an economy that must keep accelerating or it falls over. That's the debt paradox in one sentence. Growth requires new credit, new credit becomes new money, new money pushes output and asset prices higher, and the whole system leans on the promise that tomorrow's larger economy can service today's larger debts. Slow the process, and the gears grind. Stop it, and the machine stalls.

Macro analyst Lyn Alden captured the intuition in a line that resonates because it is mathematically true as much as it is poetic: "Nothing stops this train." This post explains why, starting with how debt translates into GDP, then zooming out to the U.S. dollar's role as the world's reserve currency and why dollar hegemony itself depends on continuous debt expansion. Along the way, we'll look at the feedback loops that make the system hard to reform, the geopolitical implications, and the practical ways to think about living and investing inside an exponential machine.

The Train That Never Stops

Picture a high-speed train that requires forward motion to stay upright. If it slows too much, the gyroscopic stability fails. Our monetary system works similarly. Credit growth maintains demand; demand keeps production lines humming; income generated by production repays the prior round of credit. The momentum is self-referential: credit begets income, which validates credit.

The paradox: the system can't "normalize" by shrinking debt without also shrinking the income needed to service that debt. Attempts to do so trigger recessions, which mechanically raise debt burdens relative to income (because incomes fall faster than nominal debt). Policy makers know this, so when the train wobbles, they add fuel.

How Debt Becomes GDP (and Why "No New Credit" Means Recession)

At the micro level, the mechanism is simple:

• Households borrow for homes, cars, and education. The borrowed funds pay builders, dealers, and teachers who then spend their income elsewhere.
• Businesses borrow to invest in equipment, software, inventories, and acquisitions. Those outlays become someone else's revenue.
• Governments borrow to spend on transfers and public goods; that money lands in private incomes immediately.
  

In modern banking, most "money" is bank credit. A loan creates a deposit at the same moment new purchasing power appears and flows through the economy. That flow shows up as GDP (spending on final goods and services). If credit creation slows sharply (2008, 2020 until stimulus), spending collapses, inventories pile up, layoffs begin, and incomes fall. Without offsetting policy, no new credit -> less spending -> less GDP -> more defaults -> even less credit. This is why "prudently paying down debt" at the aggregate level is hard. Individual deleveraging may be wise; collective deleveraging is contractionary. The machine needs new credit just to keep last cycle's promises from turning into defaults.

The Dollar at the Center: Why U.S. Debt Must Expand

Zoom out to the global system. Since the mid-20th century, the U.S. dollar has been the operating system of world trade and finance. Commodities are priced in dollars; global banks fund in dollars; central banks store reserves in U.S. Treasuries. That structure comes with a catch economists call the Triffin dilemma: for the world to have enough dollars to settle trade and debts, the U.S. must supply dollars to the world. Supplying dollars means running deficits, external and fiscal, and exporting safe dollar assets (Treasuries) for the world to hold.

Said differently: global dollar demand requires continuous U.S. balance-sheet expansion. The U.S. issues liabilities (Treasuries, agency debt, bank claims) that the world treats as its savings. Foreign exporters earn dollars, recycle them into dollar assets, and the loop continues. If the U.S. tried to stop expanding its stock of dollar liabilities - by permanently eliminating deficits and starving the world of dollar liquidity - the global system would seize. So long as the dollar is the reserve currency, the U.S. is structurally nudged to create more high-quality dollar debt. This is not moral praise or blame; it is plumbing. Reserve-currency status confers power (pricing energy, sanction leverage, depth of capital markets), but the bill is that America becomes the world's supplier of safe assets and consumer of last resort. Both require ongoing debt creation.

You Can't Grow Without Owing: Why "Normalization" Is a Myth

If debt and money are joined at the hip, and the dollar system requires more dollar assets over time, then the dream of a steady glide path back to 1970s debt ratios is just that - a dream. Two structural forces make "catching up" unrealistic:

1. Interest itself compounds. Even with low rates, the interest bill is a growing cash flow claim on future income. To avoid a rising debt-service burden as a share of income, you need either (a) faster nominal GDP growth, or (b) more refinancing at lower rates, or (c) some combination of inflation and maturity extension. When option (b) is scarce, policy aims for (a) and (c).
2. The declining productivity of debt. Over decades, each incremental dollar of debt tends to produce less incremental GDP. Why? Debt saturates easy projects first; later borrowing supports maintenance, buybacks, entitlement smoothing, or crisis backstops, but less growth-multiplying. The impulse still boosts nominal GDP; the multiplier just drifts lower.
   

Put plainly: you can't have GDP "catch up" while debt "normalizes," because GDP itself is downstream of fresh credit. Pull the credit lever back, and GDP slows; push it forward, and debt grows. There's no stable point where debt shrinks and GDP accelerates for long.

Everything Is Exponential (Including Money)

Exponential systems feel benign for a long time, then suddenly obvious. A few anchors:

• Compounding math: At 5% annual growth, a quantity doubles in ~14 years (Rule of 72). If the broad stock of credit grows 5-7% nominally per year, the system's balance sheets and money stock roughly double each decade.
• Interest math: An interest-bearing system needs new nominal income (or new credit) to service prior interest without widespread defaults. The easiest way to create new nominal income is - again - new credit.
• Expectations: Corporate guidance, government budgets, and household plans embed the assumption that next year will be bigger. Those expectations govern hiring, investment, and valuations; they are themselves exponential because percentage growth applied to a larger base produces a larger absolute increase each year.
  

Exponential growth doesn't mean runaway inflation every year; technology, globalization, and financial engineering can channel the expansion into asset prices, financial claims, and specific sectors for long stretches. But the curve is there, compounding beneath the surface.

The Feedback Loop That Prevents Stopping

Why "nothing stops this train" in practice:

1. Attempted deleveraging shrinks money. Bank credit repaid or defaulted is money destroyed. Falling money growth -> falling nominal GDP.
2. Falling GDP worsens debt ratios. The denominator (income) drops faster than the numerator (debt stock), so leverage looks worse even as people try to fix it.
3. Policy response is pro-cyclical on purpose. To prevent a spiral, central banks cut rates, buy assets (QE), and governments run deficits. Those actions add financial assets to private balance sheets by design.
4. Each rescue raises the baseline. Crises migrate from private to public balance sheets, but system-wide leverage steps up one stair. The staircase only goes one way.
   

History bears it out. The Great Depression was a brutal demonstration of what widespread debt liquidation does. The 2008 crisis showed how quickly modern credit creation can reverse and how QE and fiscal stimulus can reflate it. 2020-21 proved that when both monetary and fiscal hoses open simultaneously, nominal incomes and asset prices can be lifted quickly, again by adding to the stock of claims.

Debt as Power Projection: The Geopolitical Angle

Reserve currency power is not only about convenience; it's about control. Pricing energy and critical commodities in dollars, clearing payments through dollar banking pipes, and holding reserves in Treasuries give the U.S. sanction leverage and information advantages. Global institutions, from insurers to trade financiers, default to dollars because of liquidity and legal infrastructure. But power has a model-risk line item: to preserve that role, the U.S. must keep the world supplied with dollars and dollar assets. That implies:

• Persistent external deficits (the U.S. imports goods and exports dollar claims).
• Deep, elastic Treasury markets (so the world can store savings in dollar form).
• Crisis backstops that reassure foreign holders the U.S. will not let the system implode.
  

Countries explore "de-dollarization," and regional alternatives will grow, but network effects and institutional depth mean transitions are gradual. The more global contracts, debts, and risk models are anchored to dollars, the more everyone, friend and rival, relies on the U.S. to keep expanding the supply of safe dollar claims. In that light, the phrase "for the dollar to lead, it must bleed" isn't cynicism; it's plumbing. Dollar leadership requires the U.S. to be the world's balance-sheet shock absorber, expanding when others contract.

What Happens When Exponentials Meet Boundaries?

No exponential runs unbounded in the physical world. The system hits constraints, and then it adapts. Common adaptation paths:

1. Inflation / Financial Repression: Allow nominal GDP to grow faster than real obligations for a while. Keep rates below inflation ("repression"), stretch maturities, and let time erode debt burdens. Politically messy, but historically common.
2. Formal Restructuring / Default: Reduce principal or extend terms explicitly. Private sectors do it via bankruptcy; sovereigns via negotiations. Cleans the slate, but at a cost.
3. Balance-Sheet Migration: Shift leverage from part A to part B (e.g., household -> government), often with central bank support. The aggregate level remains high, but the cash-flow mismatch that triggered crisis is eased.
4. Innovation / Regime Change: Move to a new monetary technology or framework (CBDCs, different reserve mixes, or new settlement rails). This can improve efficiency and surveillance, but it doesn't stop exponential dynamics; it resets the base and potentially the distribution of who captures seigniorage.
   

Which path dominates depends on politics as much as economics. In practice, systems use a blend, some inflation, some repression, some restructurings, some migration, and incremental regime innovation.

"No One Benefits From Stopping"

A quick tour of incentives:

• Politicians face election cycles, not 20-year balance sheets. Growth (even nominal) buys time.
• Corporates optimize to cost of capital and shareholder expectations. When credit is available, buybacks and M&A are rational.
• Households value job stability and asset prices; recessions hurt both.
• Banks and markets are built on maturity transformation and confidence; sudden contraction is existential.
• Allies abroad need dollar liquidity to conduct trade and protect reserves; abrupt U.S. deleveraging would export crisis.
  

Collectively, the least-bad option is usually "keep expanding and clean up later." That doesn't mean mindless profligacy; it means the revealed preference of the system is for nominal growth paths that validate yesterday's promises.

Living in an Exponential System: A Practical Lens

You don't fix the tide; you learn to read it. A few framing ideas for operators, savers, and investors:

• Prefer productive cash flows over fixed promises. Equities and real assets tied to real activity have a fighting chance in a world where nominal aggregates expand. Fixed-income can be great at the right price. But beware long-duration promises when policy leans pro-nominal.
• Use good leverage with caution. Prefer fixed-rate, long-term, cash-flow-matched debt. If the system tends toward nominal growth and episodic inflation, fixed-rate liabilities against resilient cash flows can be an edge. Floating-rate exposure without pricing power is a hazard.
• Hold liquidity for regime shifts. Exponential systems don't move smoothly; they jump. Liquidity is the optionality to buy during jumps and survive when others must sell.
• Watch the plumbing, not just the headlines. Dollar funding spreads, Treasury market function, central-bank balance sheets, and fiscal impulses are the stethoscope. Policy aims to keep the aggregate nominal impulse positive; when it isn't, expect a policy reaction.
• Diversify across policy regimes. Some mix of global exposure, real assets, innovation risk, and cash-flow businesses gives robustness whether the path is mild inflation, repression, or periodic resets.
  

None of this is investment advice; it's an operating philosophy for a world where nominal expansion is the default fix.

Conclusion: Understanding the Ride

Our system is not broken. Rather, it is behaving as designed. Credit creates income, and income services credit. The global role of the U.S. dollar requires a steady supply of dollar assets, which in turn implies ongoing U.S. balance-sheet expansion. Attempts to halt the process trigger the very contractions that force policy makers to step back in with more stimulus. That is the loop. That is why "normalization" keeps receding over the horizon.

If that sounds bleak, consider the upside: knowing the rules lets you play the game on purpose. You can build businesses, portfolios, and personal plans that assume nominal growth, prepare for jumps, and avoid fragility to the one thing the system can't tolerate: a sudden, voluntary stop.

We built a world that runs on credit, not just creation - on promises, not only payments. The only constant in an exponential system is acceleration. Nothing stops this train - but you can choose where to sit when it rounds the next bend.