America Isn't Going Broke. It's a Big Lie.
Mar 07, 2011 16:35 Filed in: Economics
No nation with its own currency will ever go broke. The whole idea is preposterous. Any politician that tells you that the United States is going broke is either a fool or a liar. I prefer the latter; liars tend to be more attuned to reality than fools.
The reason is simple: a sovereign government can create money. As long as inflation stays low, there is no reason why a government cannot pay its bills and stimulate its economy by increasing the supply of money by printing more of it. At the moment, the danger is deflation, not inflation, and the former is far more devastating that the latter, that is, unless you happen to hold a lot of money, in which case deflation will increase your wealth. If you owe money, however, the size of your debt will actually increase, since you must repay it in currency that has increased in value.
Michael Moore has his own take on the current crisis in Wisconsin, but one thing that he said really hit me hard: “I have nothing more than a high school degree. But back when I was in school, every student had to take one semester of economics in order to graduate.” Today, few high schools even offer economics, much less require it. When I attended Murrah High in Jackson in the early ‘60s, the school ostensibly offered a semester of economics paired with a semester of commercial law, but I never knew anyone who actually took the courses or whether they were even taught. How different our politics would be if a substantial portion of our citizens knew a little about macroeconomics. It’s very difficult to argue or even converse with someone who has no idea of what the Federal Reserve does, or how consumption and government spending are related. From what I read in the papers, it is clear that our congressional delegation (and most of Congress) is clueless as to the way the economy works. And as Paul Krugman writes of the Tea-Partyers in Congress, they seem to be on a rampage to repeal the laws of arithmetic. Krugman’s column calls out for a quote, but I am resisting the impulse. You must read it all to understand what is happening in the Congress on the economics front.
The reason is simple: a sovereign government can create money. As long as inflation stays low, there is no reason why a government cannot pay its bills and stimulate its economy by increasing the supply of money by printing more of it. At the moment, the danger is deflation, not inflation, and the former is far more devastating that the latter, that is, unless you happen to hold a lot of money, in which case deflation will increase your wealth. If you owe money, however, the size of your debt will actually increase, since you must repay it in currency that has increased in value.
Michael Moore has his own take on the current crisis in Wisconsin, but one thing that he said really hit me hard: “I have nothing more than a high school degree. But back when I was in school, every student had to take one semester of economics in order to graduate.” Today, few high schools even offer economics, much less require it. When I attended Murrah High in Jackson in the early ‘60s, the school ostensibly offered a semester of economics paired with a semester of commercial law, but I never knew anyone who actually took the courses or whether they were even taught. How different our politics would be if a substantial portion of our citizens knew a little about macroeconomics. It’s very difficult to argue or even converse with someone who has no idea of what the Federal Reserve does, or how consumption and government spending are related. From what I read in the papers, it is clear that our congressional delegation (and most of Congress) is clueless as to the way the economy works. And as Paul Krugman writes of the Tea-Partyers in Congress, they seem to be on a rampage to repeal the laws of arithmetic. Krugman’s column calls out for a quote, but I am resisting the impulse. You must read it all to understand what is happening in the Congress on the economics front.
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