The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. If you understand the following, simple statement, you are ahead of most economists, politicians and media writers in America: Our government, being Monetarily Sovereign, has the unlimited ability to create the dollars to pay its bills.
Thank heaven for the Chicago Tribune. Without them and their ilk, I might have nothing to write. Despite frequent letters from me, they continue to display an almost supernatural reluctance to understand what they write about. These folks simply refuse to learn economics, and they seem proud of it. Here’s their latest:
“S&P didn’t wait for the hot air to finish blowing before raising the prospect that at some point, the U.S. government may not be able to keep paying interest on its bonds.”
Ah, yes, the old “at some point.” Add it to “eventually,” “someday,” “some time,” “soon,” “ticking time bomb,” “unsustainable,” “over time,” and other confident predictions about an unknown future.
The federal government is Monetarily Sovereign. It has the unlimited ability to credit checking accounts. In the space of one minute, the federal government could credit every bond holder’s checking account, not only for interest, but for principal. Further, because a government with the unlimited ability to create dollars does not need to borrow dollars, all federal debt could disappear in that one minute. And none of this would affect federal spending by even one cent.
Imagine. A nation without debt, and it easily can be accomplished without adding even one dollar to the money supply, so there are no inflation implications. What would the Tea (formerly Republican) Party have to scream about then?
Anyway, what does the Tribune mean when it says the U.S. government may not be able to keep paying interest? Ask them. Let me know if ever they answer.
“A rating cut almost certainly would push interest rates higher, undermining the Federal Reserve’s efforts to pump up the economy by printing money.”
Perhaps, the Tribune editors can be excused for not knowing it mostly is the Treasury that “prints money.” (Actually, credits checking accounts. Physical printing is a minuscule part of dollar creation.) But the Trib cannot be excused for thinking interest rates affect a Monetarily Sovereign nation’s ability to create money. Even were interest rates 200%, the government easily could continue creating dollars. Not that we recommend such a thing, but the physical ability exists.
“Unable to borrow on reasonable terms, America would have no choice but to win back the market’s confidence by jacking up taxes and slashing programs.”
I’ve asked the Tribune on many occasions, “Why would a nation, with the unlimited ability to create dollars, need to borrow dollars?” They never answer, so once again I’ll try to educate the ineducable. The federal government does not need to create T-securities, then trade them for dollars it previously created. T-securities could disappear (as could taxes), and this would not affect the federal government’s ability to spend. (Yes, yes, I know. There are inflation implications to the instant elimination of taxes, but not to the elimination of T-securities)
“It’s the federal government that can’t stop borrowing more than $4 billion a day to pay for politicians’ priorities.”
Federal borrowing pays for absolutely nothing. And excuse me, but do you consider Medicare, Social Security, Medicaid, food stamps, the military, the infrastructure, R&D, education, etc., etc., etc., to be politicians’ priorities? How about people’s priorities?
“(The U.S. is ) much more diversified and adaptable than the smaller European countries now in severe distress. But even the world’s most powerful nation can’t buy time forever when it’s running up a tab it hasn’t got the money to pay.”
Here the Tribune editors show they don’t understand the difference between the Monetary Sovereignty of the U.S. and the monetary non-sovereignty of “smaller European countries.” And as for, “. . . it hasn’t got the money to pay,” if that were true, how have we been paying it? (And please, please don’t say, “by borrowing.”)
Actually, this isn’t the worst Tribune editorial. It’s pretty much average on the ignorance meter. But it provides a reminder of how astray our media have helped lead America. The only solution is for the media to receive letters, lots and lots of letters, urging them to open their minds to learning. If you want to contribute to the effort, here are some people you may wish to contact:
Gerould W. Kern at email@example.com
R. Bruce Dold, Editorial Page Editor at firstname.lastname@example.org
Jane Hirt, VP/Managing Editor at email@example.com
Joycelyn Winnecke, VP/Associate Editor at firstname.lastname@example.org
Perhaps, if enough of us write, the message will begin to penetrate.
Rodger Malcolm Mitchell
No nation can tax itself into prosperity, nor grow without money growth. It’s been 40 years since the U.S. became Monetarily Sovereign, and neither Congress, nor the President, nor the Fed, nor the vast majority of economists and economics bloggers, nor the preponderance of the media, nor the most famous educational institutions, nor the Nobel committee, nor the International Monetary Fund have yet acquired even the slightest notion of what that means.
Remember that the next time you’re tempted to ask a dopey teenager, “What were you thinking?” He’s liable to respond, “Pretty much what your generation was thinking when it screwed up the economy.”