Last week President Obama
bluntly warned
Congress that he will not negotiate when it comes to raising the statutory
debt limit. If Republicans attempt to use a debt ceiling vote to win
concessions on spending from the White House, Mr. Obama threatens simply to
raise the limit by executive order or other unilateral action.
This is business as usual in
Washington. Democrats literally do not believe we have a deficit and debt
problem, and reliably propose greater borrowing and spending. Republicans
talk a good game when it comes to government debt, but have no credibility to
argue against deficits or abuses of executive power. Brinksmanship ensues,
and ugly compromises are reached at the 11th hour. We all lose as the endless
borrowing and money printing further erode our dollar and our economy.
Keep in mind that the federal
government relentlessly spends about $100 billion more each month than it
collects in taxes. This means roughly 40% of every dollar Washington spends
is borrowed, to be "paid back" only in highly devalued, newly
created money. Ultimately this can only lead to the destruction of the US
dollar, as history plainly teaches. But in the face of this reality Obama
just shrugs, turning to demagoguery and talk of little old ladies' Social
Security checks . Like Obama, far too many Americans view federal debt as
a nonissue. Consider Paul Krugman, America's most reliable Keynesian
economist and a beloved figure among mainstream journalists. He recently wrote
an article about the debt limit issue, in which he discussed a
controversial proposal to have the federal government simply create a
platinum coin with a face value of $1 trillion:
"Here's how it would
work: The Treasury would mint a platinum coin with a face value of $1
trillion (or many coins with smaller values; it doesn't really matter). This
coin would immediately be deposited at the Federal Reserve, which would
credit the sum to the government's account. And the government could then
write checks against that account, continuing normal operations without
issuing new debt."
To be fair, Mr. Krugman
acknowledges that minting such a coin would be an accounting
"trick," but he is dead serious about this option for the Obama
administration. This then is the state of modern economics discourse in
America, where a respected New York Times economist literally can propose
creating "money for nothing" and have the idea taken seriously.
Krugman's suggestion is just
another variant of the endless stimulus proposals, which purport to create
greater aggregate demand in the economy by creating more money. Whether this
is done by the Fed or the Treasury is of little importance, as long as
government is creating demand-side "growth," however artificial.
But in just a few short
sentences Professor Hans-Hermann Hoppe eviscerates
the Krugmans of the world by pointing out the obvious: If governments or
central banks really can create wealth simply by creating money, why does
poverty exist anywhere on earth? Why haven't successive rounds of
quantitative easing by the US Fed solved our economic recession? And if Fed
money creation really works, and doesn't create inflation, why haven't
Americans gotten richer as the money supply has grown?
The truth is obvious to
everyone. Fiat currency is not wealth, and the creation of more fiat dollars
does not mean that more rice, steel, soybeans, Ipads, or Honda Accords
suddenly come into existence. The creation of new fiat currency simply
strengthens a fantasy balance sheet, either by adding to cash reserves or
servicing debt. But this balance sheet wealth is an illusion, just as the notion
we can continue to raise the debt limit and borrow money forever is an
illusion.