Sadie’s question of the day

Question: At what age should economists stop public speaking?
 
“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” said Greenspan on NBC’s Meet the Press.
 
Answer: After checking his birth date, I’d say 84 (he’s 85 currently)
 
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  • Moose

    Please tell me there is more context to this statement? Otherwise we are in deep doo-doo if that is the thinking of our economic “leaders.”

    Unless, Sadie is implying by the question that Greenspan needs to be moved into the nice facility out in the country that is nice and peaceful.

  • http://ymarsakar.wordpress.com Ymarsakar

    For those that are thinking about tweaking their investment strategy, I suggest you take a look at this.

    http://theelevationgroup.net/presentation/register.php?a_aid=a1ac5cee&a_bid=290b868b

     

  • Doug

    Well, he’s right, he’s just more blunt than people are used to hearing.  The talk about default is a little silly since our debts are due in dollars.  If people start refusing to buy bonds due in dollars then we can start talking about default.  That’s the magic of a central bank (in this case, the Federal Reserve) – they can pay back any debt by just issuing an electronic transfer out of their bottomless pit.  It’s approved even though there’s nothing on the other end.  That’s what happened with all of this quantitative easing nonsense.  That’s also why people are making noises about maybe making the dollar the default currency for all transactions is maybe making less sense than it used to…

  • Danny Lemieux

    Doug, what is the difference of what Greenspan proposes (print money) and what happened in Weimar Germany (just asking, I don’t really know the answer to this)?

  • http://zachriel.blogspot.com/2005/07/liberal-v-conservative.html Zachriel

    Danny Lemieux: Doug, what is the difference of what Greenspan proposes (print money) and what happened in Weimar Germany (just asking, I don’t really know the answer to this)?

    Not in quality, but in quantity. (Germany was defaulting on reparations, France seized the Ruhr, and the value of the papiermark plummeted.)

    The recent default risk in the U.S. wasn’t due to not being able to pay its bills, but because America was considering voluntary default. As this risk will be recurring, it has led to a credit downgrade. The U.S. can easily pay its bills. It is the weathiest country in the world, and there is no reason it can’t get its financial house in order.
     
    Doing so won’t require a devalution of the U.S. dollar, but a modest devalution can help in certain cases, as it distributes the pain throughout the economy, rather than trying to negotiate cuts in individual programs and wages. Imports become more expensive, and monetary assets become less valuable; but, a devaluation can act as a substantial fiscal stimulus, as exports become less expensive for foreign buyers. 
     
    The problem with Greece is that they don’t have their own currency, so they have to pay their debts in Euros. They can’t devalue, and the spending cuts just exasperate the downturn. Sweden, on the other hand, had a devaluation of the Krona that allowed a rapid return to growth. Devaluation will tend to mean higher borrowing costs over the long run, as people lose trust in the future value of the currency.
     

  • Libby

    A little off-topic, but Rush just came up with the best slogan against Obama: “Debt Man Walking”.
     

  • Charles Martel

    Libby, great slogan!

  • Doug

    @Danny – I think Zachriel covered it, but to give my own short answer – yes, that would devalue the dollar => inflation and if you make a habit of it things can get out of hand.  There are a variety of countries that have entered really awful inflation spirals and sometimes they recover and sometimes they don’t.  

    But in terms of the whole voluntary default aspect of it – I believe part of what Greenspan’s thinking about is that no, actually even that isn’t necessarily the case, because the fed can play games where they basically just buy up and destroy bonds so that they treasury is off the hook.  Normal people who aren’t running central banks don’t think that way, and it’s probably a terrible idea, but he has a point.

  • SADIE

    Debt Man Walking column.
     
    Be sure to read down to the bottom of the article and his remarks about Christina Romer following her appearance on that BM show on HBO.


    http://www.rushlimbaugh.com/home/daily/site_080811/content/01125106.guest.html

  • http://zachriel.blogspot.com/2005/07/liberal-v-conservative.html Zachriel

    Dougthat would devalue the dollar => inflation and if you make a habit of it things can get out of hand.  There are a variety of countries that have entered really awful inflation spirals and sometimes they recover and sometimes they don’t.  
     
    That’s a great point. If the currency is devalued, then imports are more expensive. This can cause an increase in the cost of raw materials for industry, and therefore an increase in the price of products. Stores raise their prices. Workers demand more money, and often price supports on food and other essential commodities. And so on. If the government then inflates more in order to meet these demands, then it can lead to an inflationary spiral based on *expectations* of inflation.  This is a typical problem of Leftist governments trying to appease the working classes. 

    The U.S. had this problem in the 1970’s, partly due to the aftermath of the Vietnam War and new social spending. The Fed under Volcker put the brakes on the money supply, and even though it led to a deep recession, it finally convinced the markets that they could no longer expect the Fed to bail them out. Inflation has not been a significant problem in the U.S. since. Volcker got the credit, and Carter got the blame, by the way, but the problem was solved. 
     
    The current problem in the U.S. is deflation and the threat of deflation. Why should anyone invest now when they can buy cheaper later, when money in the bank is becoming more valuable just sitting there. This is also a problem of *expectations*. Many economists think the U.S. needs to push inflationary *expectations* up to about 3% in order to push the money off the sidelines.