Do you remember that scene from Blazing Saddles where Bart holds himself hostage?
As the debt ceiling debate rolls around again, it reminds me of what the U.S. Congress is doing to itself – we've already appropriated spending, but we're going to use the debt ceiling to threaten default on ourselves in order to cut spending. In other words, we're now holding ourselves hostage.
Anyhow, as this whole silly debate flares up again let's just remember a few things that show how terribly irrational this whole debate really is:
- The U.S. government is a contingent currency issuer. That means we can always produce the currency necessary to pay off our bills. In fact, the U.S. Treasury could legally do this immediately via the Platinum Coin loophole (which yes, is silly, but silly situations like holding yourself hostage in the face of a default that would be catastrophic, require extreme measures).
- The U.S. government cannot "run out of money". There is really no such thing as defaulting on our obligations which are denominated entirely in a currency we can create.
- The U.S. government is nothing like you or I and cannot tax to procure funding, sell risk free bonds or print off currency if needed.
- The U.S. government is constrained not by an inability to create money, but by the ability to spend too much or create too much inflation.
- If inflation is the real constraint then we should all note that output is low, unemployment is high, and inflation is very low by historical levels. In other words, we could actually use a lot more spending in this environment.
- The debt ceiling is only reached because the U.S. government has already appropriated spending. In other words, this "constraint" is the equivalent of eating a cheeseburger and then tying a knot in your small intestine and threatening your stomach not to digest the food.
- If we want to have a debate about the efficacy of government spending, then let's have that debate. But let's not use the threat of default to do so. That's entirely irrational and using the threat of default to promote a policy position is an abuse of power that should never be tolerated.