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.