The Problem Is That Sarah Palin Isn’t the Only One Who Thinks This About Debt

By way of Madame Wev, we come across this utterance by Sarah Palin:

If we are going to wet our proverbial pants over 0.3% in annual spending cuts when we’re running up trillion dollar annual deficits, then we’re done. Put a fork in us. We’re finished. We’re going to default eventually and that’s why the feds are stockpiling bullets in case of civil unrest.

My goal isn’t to make fun of Sarah Palin; at this point, that’s like picking on the slow kid. But there are a lot of Very Serious People, along with many journalists, who also believe that the U.S. federal government, which issues its own currency and pays its debt in that same currency, will somehow ‘default’ (never mind that about 70 percent of all federal debt is held by U.S. private and government entities–will we default to ourselves?). But unlike you, me, or the Commonwealth of Massachusetts (God save it!), who have to find dollars to pay back our debts, the U.S. can always issue currency. Default never has to happen.

There can be consequences to excessive debt when we bump up against the real limits of the economy: resource misallocation, inflation, and speculative bubbles (odd how that last one is rarely mentioned…). But federal debt per se isn’t a good or a bad thing, it’s just another economic tool for getting policy outcomes we want.

That many people do not understand the difference between a currency issuer and a currency user is another reason why can’t have nice things.

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5 Responses to The Problem Is That Sarah Palin Isn’t the Only One Who Thinks This About Debt

  1. Min says:

    The way that we have things set up, the Federal debt is a good thing. Federal debt is money in our pockets. (It is also money in the pockets of foreigners and foreign gov’ts, but that’s geo-political.) When it looked like we might pay off the debt by 2014, even Alan Greenspan recoiled in horror.

    Now, maybe we should set things up differently, like minting some $1T coins, but until we do, the Federal debt is good.

  2. albanaeon says:

    Min’s right here. We’ve got a political class that’s desperate to strip all the money that’s left of the middle class and shovel it on the already extremely ridiculously wealthy.

    My question is, what then? I guess the ubermensche go Galt and we get to clean up the mess. Hope they leave us a few pundits as cover when they do. Heaven knows their time as useful idiots will be over.

  3. If you look through history there have been many instances of nation’s that have defaulted yet could also print their own currency. Simply put, at some point inflation causes rates to rise to such an extent that there is no option but to default or restructure. I’m not necessarily saying that will happen to today’s nations, but there is a chance that it could. This is particularly true for Japan.

    • Min says:

      “If you look through history there have been many instances of nation’s that have defaulted yet could also print their own currency.”

      They had Republicans, too?

  4. alwayscurious says:

    Presently, 70% of the public debt is domestically held…10 years ago 80% was domestically held…10 years before that 85% was domestically held. This isn’t a trend that can go on indefinitely paying for senseless things like fighter jets & democratizing Afghanistan. We need to use this tool to invest in smart things. More over, for all the Republican talk about reducing the size of the government–they have abjectly failed to make it smaller (or more efficient). Time to let government expand, do something useful, and reap the benefits in the coming decades.

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