While watching videos on YouTube the other day, I came across a video entitled “Richard Koo Educates Peter Schiff“. Richard Koo is, evidently, a Japanese economist and in the video he discusses the “balance sheet recession” that Japan struggled with for decades starting in the 1990s. The publisher of the channel posted the video as a way of demonstrating that Wall Street prognosticator Peter Schiff is wrong when he predicts the collapse of the United States currency. In the comment section of the video, the author explains why the United States can never borrow too much money.
I am sorry to tell you this but you are flat out wrong. We do not borrow USD from China or Japan or Uganda. The US, UK, Japan etc like most countries with the exception of the Euro Zone are all monopoly currency issuers. That means they can never be in debt denominated in that very same currency they issued to begin with! In other words they can never be in debt to themselves. That is mathematically impossible! You are applying private sector economics to Gov’t economics which is absolutely wrong. A vast majority of the population makes this Easy mistake no doubt to the avg person on the street. But it simply doesn’t work that way for a Sovereign Currency issuing Gov’t. (Minethis1 on a comment on his YouTube channel)
This bit of logic is the misconception which has guided U.S. economic policy over the last 50 years and will undoubtedly be the cause of the collapse of the United States. “We can never be in debt to ourselves, therefore we can print as much money as we want and never get into any debt related trouble.” Where to begin?
Let us begin with a simple thought experiment. Imagine that a politician was running for President of the United States. “Vote for me and I will make you rich!”, he promises. The plan is that the government will issue 200 trillion dollars in U.S. bonds, the Federal Reserve will buy those bonds with printed money and the government will distribute the money to the citizens. The government didn’t do anything wrong because it raised the money for the program through a bond sale. The Federal Reserve has distributed 200 trillion dollars in exchange for 200 trillion dollars in assets. The citizens are wealthy because they each receive benefits worth almost a million dollars. A genius plan that ends poverty overnight and allows every American to live in a mansion and drive a Porsche!
Of course, the problem with this simplistic Utopian scheme is illustrated by this picture of a man in Zimbabwe. He is worth billions in the countries worthless fiat currency and so he is starving. If a Presidential candidate were to make every U.S. citizen a millionaire in this way, the currency would become worthless overnight and there would be no net improvement in living standards. In fact, the collapse in confidence in the dollar would mean that other countries would no longer exchange their goods and services for dollars and the standard of living in the United States would decline precipitously as the $400 billion dollars worth of goods that we net import from other countries each year became unavailable (the current U.S. trade deficit fluctuates above $40 billion a month).
The problem with this “thought experiment” is that it is not really a thought experiment. It is what has actually been done in the United States over the last 50 years. In order to secure their own re-election and line their pockets, politicians have promised 200 trillion dollars worth of goodies and paid for them using just exactly the scheme described above. As I detailed in a previous post, China and the BRICS nations are about to revoke our license to print money and end the U.S. practice of suppressing foreign living standards by inflating the currency used as the standard for international trade and reserves. The Two Hundred Trillion dollar Ponzi scheme will come to a crashing end and the results will be devastating.
The Moral Collapse of the United States
But the results have already been devastating. I have been doing a lot of thinking about how our country has gone so badly wrong so quickly. When I was growing up, many of the values that I believe to be important were taken for granted by a majority of the population. Today, such obvious truths cannot be spoken without hostility and ridicule. What has happened? Once again, Minethis1 provides the succinct answer:
Where is your Collapse? Fool! (YouTube user Minethis1 responds to a sane comment on “Richard Koo Educates Peter Schiff”)
Those of us who believe in traditional values have been warning for decades that immoral behaviour would have dire consequences. “We cannot spend money we do not have, the results will be bankruptcy and a disaster for society.” “We cannot allow lax divorce laws, the result will be an epidemic of divorce and a disaster for society” “We cannot destigmatize single parent families, the result will be the collapse of the American family and a disaster for society.” Social liberals have continuously thrown out the principles that led the United States to prosperity without ever questioning whether or not there could be a baby in all of the bath water of religious self-righteousness that they were opposing. In response, those of us who believe in the importance of moral principles continuously forecast doom and destruction. As the years went on and the forecast doom and destruction never appeared, society became ever more heedless of the warnings of those of us who believe in moral principles. This process finally culminated in the ultimate rejection of moral principles, the Supreme Court’s recent decision to legitimize gay marriage. This whole process has been fueled and facilitated by the Two Hundred Trillion Dollar Ponzi scheme. How?
As the costs of divorce, single parenthood, drug use and other socially irresponsible behaviours have mounted over the last 50 years, they have been increasingly paid for with money generated as described above. Did a young woman have a child that she couldn’t afford through irresponsible sexual behaviour? No problem. If she didn’t avail herself of an abortion, her grandparents had Social Security benefits and could buy toys and food for the youngster. Freed from the burden of caring for their parents, her parents were able to provide shelter and a great deal of material assistance. Add generous Welfare benefits made to her directly, and the young woman and the child lived a comfortable lifestyle and the consequences of the irresponsible behaviour were not apparent using any statistical measure. And so with drug use, divorce and every other socially irresponsible behaviour. The consequences were invisible because society paid for them with a two hundred trillion dollar credit card.
As I outlined in my previous post, the party ends this September.