‘You Print The Money, I Hate To Tell You’

When it comes to the debt ceiling debate — and just debt in general in the context of the US government — there aren’t a lot of people who get it.

Maybe I should rephrase: There aren’t a lot of people who get it and are willing to tell the truth about it in public.

There’s something uncomfortable about the reality of money — namely, that it isn’t real. But US dollars are more “real” than other money because the greenback’s shared mythology is so strong. Almost anyone, anywhere will accept dollars as payment for anything. The same simply isn’t true for any other kind of money.

That makes debates about fiscal responsibility and US borrowing somewhat peculiar. If anyone else — an individual, a company or another nation — owes dollars, that’s a problem because they can’t issue them. The US can. So, it isn’t clear what, exactly, a T-bill or a T-note or a Treasury bond is. Can you “owe” a sum denominated in a currency you issue? And if every debt in the world is, in one way or another, payable in that currency, can you properly “owe” anyone anything at all? The simple answer is, “Yes, it’s an obligation to pay, even if you can conjure the payment out of thin air.” The more philosophical answer is, “No, because if you can conjure the payment out of thin air, it’s not clear what ‘owe’ even means.”

Not many people are willing to have that discussion. It’s simply too much for most people to wrap their minds around. There are any number of other, related discussions that are too psychologically vexing for most people to entertain. For example, when someone suggests to you that America needs to pay off its debt, or that the rest of the world is “losing its appetite” for America’s debt, ask them how the global financial system is going to function without US government paper that can be used as collateral.

Last week, I was listening to Ezra Klein’s podcast, and his guest was Veronique de Rugy. It was unbearable. Literally. I had to turn it off three-quarters of the way through. Granted, I knew I wasn’t going to be able to tolerate it, so I was to blame for my own misery. But dear God — parts of the discussion were almost physically painful. At one point, Klein pressed her repeatedly (and by repeatedly I mean at least three times) to provide numbers for what would count as responsible and/or appropriate deficit and debt levels for the US. Her inability to do so laid bare the fictitious nature of the debate, thereby vindicating Klein, only he didn’t realize it. Either that, or he was too polite to shout “checkmate!” Either way, I couldn’t countenance it.

One person who does get it, and is (more than) willing to tell the truth in public is Stephanie Kelton, whose work I used to cite habitually. Ultimately, I stopped because i) Kelton’s critics are unwilling to read enough Kelton to understand why it isn’t accurate to blame Modern Monetary Theory for inflation, and just as annoying, ii) Kelton’s fans are unwilling to cede any ground whatsoever, to the point that even mentioning the word “inflation” in the same sentence as “Kelton” is enough to generate irritable emails from her followers. I don’t like being forced to “pick a side.”

Another person who gets it and is willing to tell the truth in public (even more so than Kelton) is Donald Trump. With the debt ceiling debate still raging, I thought this was an opportune time to remind readers what Trump said in 2016 during an interview with CNN, one of the last Trump granted before his relationship with the network deteriorated.

“People said I want to go and buy debt and default on debt, and I mean, these people are crazy!” Trump told Chris Cuomo, seven years ago this month. “First of all, you never have to default because you print the money, I hate to tell you, OK?”

“OK!” That’s all there is to it. “I hate to tell you,” to employ Trump’s parlance. It’s so simple even a “genius” gets it.

To reiterate: This entire charade is just that — a charade. There’s no entitlement crisis. Social Security can’t go broke. Deficits and debt don’t matter for the US, and with apologies to De Rugy, her attempt to compare the US to France (a non sequitur in this context for obvious reasons) while debating Klein betrayed an almost unfathomable lack of understanding for someone with her CV. Consider these excerpts from the podcast transcript:

Klein: so let me ask you more concretely: What path you would like to see us on? So when you look at that CBO document, over the next 10 years, they project an average of 5.1% of GDP in deficits annually. What would you like to see that number at?

De Rugy: And so it depends on what we’re trying to achieve. Are we trying to reduce our debt to GDP ratio? I mean, with all the caveat that, fundamentally, debt to GDP ratio is not — there’s not a magic number, which I, by the way, used to believe somehow. So if that’s the goal, there’s a lot of things that you need. And I think it’s a decent goal. I think kind of reducing the level of our debt, increasing our ability to pay it back, is a good goal.

Klein: I think you’re slightly overcomplicating this. I mean, just give me a number of what you think annual deficits could run at that would not scare you for the fiscal future of the country. I mean, you think it is worthwhile to have a negotiation with the debt ceiling hanging in the balance to reduce the deficit, year on year. Surely, you have something in your head by which you would say, that was successful, we did it?

De Rugy: Well, I can tell you right now what I’d be happy about is that we don’t negotiate the Social Security cliff in 2033 when it’s happening. This is how much I’ve lowered my ambition. So the debt ceiling is just an opportunity to actually talk about debt problems.

[…]

Can I tell you exactly what debt sustainability looks like? I think it means finding a way so that we don’t face a situation where the deficit increase is so enormous under a fairly rosy scenario where nothing bad happens.

Klein: But you don’t have in your head a deficit as a percent of GDP number for that? There isn’t — like, for you, if we got it to 3% a year, you’d be happy?

De Rugy: I mean, in my ideal world, it would be even lower. But I think that 2% to 3% — have you been following what’s going on in France?

See what I mean? See why it’s maddening? Deflect, deflect, deflect. Never answer the question. Because in the US context, the question is nonsensical.

To be fair, De Rugy was adamant that the US shouldn’t default, and that the debt ceiling is only useful because it’s the most effective way to force the budget discussion. But if you listen to the podcast, she never really explained why that discussion is necessary in the first place. She just appealed — over and over and over– to big, scary numbers, forecasts, academic papers and listeners’ intuition, which tells them that “too much debt” is ruinous eventually. Which it is. To everybody except the US government.

Both her and Klein fretted over ballooning interest costs, as though the interest payments are denominated in something other than dollars. And on and on, in an endless circle of nonsense.

At the end of the day, it’s all made up, of course. QE is a Ponzi scheme. Dollars are inherently worthless. And so on. I know that better than anyone. Explaining why it’s all an unsustainable Ponzi scheme was (quite literally) my job at one point years and years ago.

But between now and the day when the world runs on something other than dollars, the only context in which this debate matters for the US is a scenario in which government spending creates a mismatch between demand and supply, resulting in inflation. There are a number of ways that can happen including, as De Rugy put it, referring to the war and the pandemic, “bad luck,” but it’s important that people don’t conflate that with deficits and debt. It’s possible that supply-side constraints and frictions will linger in perpetuity, and if we keep spending into that, it could put upward pressure on inflation, which in turn could mean higher rates, and higher debt servicing costs, but the Fed can cap rates if they want and besides, the interest is payable in dollars.

The real risk here isn’t fiscal largesse or “too much debt.” It’s the reputational risk that goes along with being stupid enough (forgive me) and arrogant enough, to abuse the privileges that go along with issuing the world’s reserve currency by defaulting. That’d signal to the rest of the world that US officials care so little about everyone else on the planet that Washington is willing to cause untold economic suffering just so a few guys in D.C. can pursue and perpetuate a petty partisan grudge match.