Under a modern fiat monetary system:
1) The total amount of money is not constrained by some fixed amount of gold. Instead, it is constrained by the total output of the national economy. There should be enough money in circulation to run the economy at full steam and buy up every product and service available. A fiat currency moves the theoretical boundary of economic activity beyond some arbitrary threshold dictated by lumps of precious metal and pushes it out to “what the system can bear” based on actual, physical capacity.
2) Spending beyond the economy’s total productive capacity is what leads to inflation. This additional money cannot buy any new products or services (there’s no way to make them since we’re at full capacity), so it goes toward bidding on existing products and services and therefore raises their prices.
3) Your taxes do not pay for any federal government expenditures. Taxes are instead a form of private sector demand reduction. Remember, the economy can only hold a certain amount of money dictated by its maximum productive capacity. If the government wants to spend more money to purchase goods and services, it should tax more to reduce the amount of money in the private sector. If it doesn’t tax more then it risks inflation from having too much money in circulation. Likewise, if it wants to spend less, it should tax less and let the private sector do more spending. If it doesn’t tax less, then the amount of money in circulation is too low and productive capacity sits unused. The idea here is to keep the total amount of money chasing goods and services near an optimum, maximum level. Again, taxes reduce demand in the private sector to make room for government spending.
Note that this turns our normal reasoning on its head. The federal government does not tax you so that it can then spend your money on buying or providing goods and services. It taxes you so that you cannot spend as much of your money on goods and services, which then makes room for it to spend money on them instead.
4) Sovereign governments that issue their own currency are never insolvent. Put another way, there is no such thing as debt to be repaid at the federal level. Why does the government have to issue debt (as under the gold currency regime) when it doesn’t need the money in the first place? It generates money, so neither taxes nor loans made via debt contribute to government coffers.
There are other implications of a fiat currency regime, but these are the most interesting. This is what Modern Monetary Theory is all about—the actual implications of a sovereign government issuing its own fiat currency.