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.
Al Giordano on Hillary Clinton and Human Rights - a Cautionary Tale
And if - as the mass media seems to agree right now - US President-elect Barack Obama is about to install someone as the next Secretary of State who has shown zero understanding of, much less passion and action for, human rights in Mexico, Colombia and elsewhere (except in isolated cases where the same mass media has turned a particular case into an international cause celébre), we're going to see more of the same terrible story happen over and over again.
From Sam Smith’s Progressive Review: What the Banks, Academics, the Media and Politicians Don’t Tell You About Money
The power to create money is an awesome power - at times stronger than the executive, legislative or judicial powers combined. It's like having a "magic checkbook," where checks can't bounce. When controlled privately it can be used to gain riches, but more importantly it determines the direction of our society by deciding where the money goes - what gets funded and what does not. Will it be used to build and repair vital infrastructure such as levees to protect major cities? Or will it go into warfare or real estate loans, creating asset price inflation - the real estate bubble.
Thus the money issuing power should never be alienated from democratically elected government and placed ambiguously into private hands as it is in America in the Federal Reserve system today.
Indeed most people would be surprised to learn that the bulk of our money supply is not created by our government, but by private banks when they make loans. Most of our money is issued as interest-bearing debt.
We are borrowing this money system from private banks when instead we should own the system, not rent it. Our government has the sovereign power to issue money (Art.1, Sect.8) and spend it into circulation to promote the general welfare through the creation and repair of infrastructure, including human infrastructure - health and education - rather than misusing the money system for speculation as banking has historically done. Our lawmakers must now reclaim that power. . .
Naomi Klein: In Praise of a Rocky Transition
The more details emerge, the clearer it becomes that Washington's handling of the Wall Street bailout is not merely incompetent. It is borderline criminal.