“As the government has the right to issue fiat money, government debt is safe from danger of default of either interest or principal when due.”
~H.P. Minsky, 1959
~H.P. Minsky, 1959
Putting it more crudely, “the United States can pay any debt it has because we can always print money to do that. So, there is zero probability of default.” ~Alan Greenspan
Warren Buffett: “We’ve got the right to print our own money. That’s the key.”
Even the King of Debt (sometimes) gets it: “This is the United States government. You never have to default because you print the money, OK. I hate to tell you.” (video of Trump)
None of this should be remotely controversial. Here’s the STL Fed making the same point. “Our challenge is not “finding money” but managing inflation-risk in an economy where the government-as currency issuer-is not constrained by the need to raise revenue.”
Hence, “pay-fors” (tax hikes or cuts to other parts of the budget) exist to offset the inflationary effects of proposed spending. More-or-less unnecessary in a depressed economy. Closer to full employment, they MAY be necessary. Depends on several factors.
It would be extremely useful if lawmakers (and their budget-scoring agents) began with the question, “Will this proposed spending bill require offsets and, if so, how much needs to be offset?” And show your work!
Instead, we start with the proposition that any new spending bill should be “paid for”–i.e. government must demonstrate that it has a plan to remove a $ from the economy for every $ it plans to spend into the economy. That is holding us back, big time.
Can I close out this thread and get back to my book now? I can’t tell whether I’ve convinced everyone on Twitter. 😉
Lastly, to anyone who thinks MMT is some flighty, print-your-way-to-prosperity program, NO! What I’m advocating is a far more *serious and technical* way to approach the federal budgeting process.