Both Republicans and Democrats have been explaining that “There Is No Alternative,” we need public policies promoting austerity because government is “out of money.” The question seems to be not “do we need austerity?” but “will we be austere sooner or austere later?” Meanwhile, the bipartisan consensus is that the government is definitely out of money.
But these assertions are at odds with the common knowledge that the U.S. government literally creates its own money. Unlike the euro, the dollar is a sovereign, fiat currency, unconstrained by exchange rates or treaties. And since Nixon closed the gold window, government can issue dollars without waiting for gold or silver mines to provide any backing for them. So we can’t possibly be “out of money,” any more than the Bureau of Weights and Measures can be “out of inches.”
Nevertheless, even the private sector agrees with that “out of money” message. Billionaire Pete Peterson recently sponsored the Fiscal Wake Up Tour, essentially trying to drum up popular support to cut social safety nets, retirement programs and Medicare because we’re “out of money.”
Perhaps it’s a coincidence, but investors like Peterson profit from the “out of money” sentiment since it’s deflationary. When borrowers repay loans to creditors like Peterson with inflated money his investor class suffers investment returns that are lower than when dollars are scarce, and deflation prevails.
Even more conveniently, during deflationary times, the investor class can buy assets in the public realm at bargain-basement prices. If the public sector is “out of money,” then German bankers can demand, as they have, that the Greeks mortgage the Parthenon and their ports. The City of Sacramento can propose selling $500 ...