The Paul Ryan Crowd Is Confused

The Paul Ryan Crowd Is Confused

It’s painful to watch politicians or television commentators discussing economics. It’s as if they’re stuck in a time warp, back when the U.S. was still on the gold exchange standard. As Paul Ryan likes to put it, balancing the government budget, like you would your household budget is “good economics,” regardless of the ensuing unemployment rate or other negative impacts on U.S. citizens.

The U.S. abandoned the gold exchange standard in 1971. With a non-convertible currency now—the dollar—all debt is issued and paid in that currency. If you take a $100 bill to the Federal Reserve, they’ll give you five 20s, but no gold. Ryan types are concerned about government insolvency, even though there’s no way for a nation with a non-convertible currency to become insolvent. U.S. government checks never bounce. Period.

Fear-mongering politicians on the right say we’re about to become the next Greece, but Greece is not analogous to the U.S. As a Eurozone member, it cannot create euros as the U.S. can create dollars. Lacking a sovereign currency, it was forced into a brutal bailout deal. Americans can only be tricked—not forced—into austerity by clueless or deceitful politicians who naively believe the economy operates like a household.

The U.S. currently has about a 1:1 debt/GDP ratio, which deficit hawks like Ryan are convinced is a portent of inflation and, in a worst-case scenario, hyperinflation. I wonder how they explain Japan’s current debt/GDP ratio, which has climbed from 1.62:1 in 2007 to an “alarming” 2.29:1 in 2015? They claim deficits and mounting national debt inevitably lead to inflation, and that the U.S is at the tipping point now, yet Japan has barely been able to keep itself out deflation for years.

The truth is, although it is possible, it’s not easy for a nation with a strong economic base to spend its way into inflation. Japan’s bond markets are calm, and interest rates on long-term government bonds are lower than ever. In other words, the market is not concerned, although by Ryan rules, Japan should be insolvent by now, with its people pushing wheelbarrows of 10,000 yen notes to the local convenience store……..

About Kristjan

Defitsiidi terrorismi vastase pataljoni eriüksuslane (finantsignorantsuse vastu võitlemise osakond). Treening: MMT, postkeinsism, Tartu Ülikool Majandusteadus
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