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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.
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