So this is Pascal-Emmanuel Gobry. He writes for Forbes. You know Forbes, right? Not what one would call a liberal media outlet by any stretch of the imagination. Mr. Gobry has kindly eviscerated the GOP’s argument for slashing all social services (yet not touching the military) and, even better, he does so in a frighteningly easy manner.
If there’s one article of faith in Washington (and elsewhere), it’s the idea that the United States might get into a debt crisis if it doesn’t get its fiscal house in order.
This is not true.
The reason why it’s not true is because we live in a fiat currency system, where the United States government can create an infinite number of dollars at no cost to meet its obligations. A Treasury bill is a promise that the government will give you US dollars–something that the United States government can produce infinitely and at no cost.
This is important to remember because it is part of the same argument that the right uses to declare Social Security “bankrupt.” Yes, Congress looted the trust fund but the IOUs left behind are Treasury bills, the single most secure form of investment in the world. Period. How secure? It’s so secure that other countries are buying Treasury bills left and right AT A LOSS. You read that correctly: Interest rates are so low that other countries are literally paying us to hold their money to keep it out of a volatile world market. If that doesn’t convince you that our economy is sound, you’re insane. Or a Republican. Which is really the same thing these days.
Gobry goes on:
But waaaaaaait, you shout, what about inflation? If the government prints money like crazy, won’t that create inflation?
Well, in theory, yes. But probably not. Why is that? Because the US has an even bigger advantage than just being sovereign in its own currency (hi Greece), it also holds the reserve currency. The US dollar is the main currency that is used in most international transactions, it is held by all of the world’s central banks, and so forth.
Why is this important? Well, another way to define inflation is to say that the supply of a currency gets out of whack with its demand: too much currency chasing too few people who want to hold it, and so its value drops. Well, when you have the reserve currency, the demand for your currency is always going to be extremely strong. There’s always going to be tons of people, all around the world, who want to use US dollars, because their transactions are conducted in US dollars. (And it’s highly unlikely that this will change soon–being the reserve currency has a network effect, meaning everyone uses the dollar as the reserve currency because everyone else uses it, creating a self-reinforcing cycle that’s extremely hard to break.)
Basically, the entire world economy would have to explode far worse than 2008 for what Paul Ryan and the GOP are insisting will happen ANY SECOND NOW to actually occur. Maybe Gobry is some wild-eyed liberal?
It’s especially distorting it on the Right, where hysteria about deficits, and debt, and becoming like Greece has reached a fever pitch. Paul Ryan, especially, has framed his entire message on entitlement-cutting on the flawed premise that the US needs to cut its entitlement or it will suffer a debt crisis. This message, in turn, has infected broad swathes of the conservative movement (including very smart people in it), a movement that I consider myself a member of and want to see in strong intellectual health. But very few liberals–certainly no Democratic elected officials that I’m aware of, certainly not the President and the Vice President–are disputing the premise that the US is in any danger of a debt crisis.
In future posts, I will try to look at what the conservative movement can do to move past the idea of the debt crisis, and what it means.
Maybe Gobry is a secret Muslim illegal alien traitor that hates America because the chances of the GOP listening to him are exactly 0%. Some days, it must absolutely suck to be a conservative with a functioning brain and back bone.