Jamie Galbraith’s Dog Whistle (3)
This is where Jamie’s dog whistle comes into play: He tells you that there is no problem with the federal government taking out a mortgage on your future for present economic growth. To do this, he borrows the silly argument of 2012 Presidential Candidate Warren Mosler that government cannot run out of money. (We told you to watch this guy! It was only a matter of time before his ideas crept into economics and politics.)
But no government can ever be forced to default on debts in a currency it controls. Public defaults happen only when governments don’t control the currency in which they owe debts–as Argentina owed dollars or as Greece now (it hasn’t defaulted yet) owes euros. But for true sovereigns, bankruptcy is an irrelevant concept. When Obama says, even offhand, that the United States is “out of money,” he’s talking nonsense–dangerous nonsense. One wonders if he believes it.
Nor is public debt a burden on future generations. It does not have to be repaid, and in practice it will never be repaid. Personal debts are generally settled during the lifetime of the debtor or at death, because one person cannot easily encumber another. But public debt does not ever have to be repaid. Governments do not die–except in war or revolution, and when that happens, their debts are generally moot anyway.
You see! We can spend as much as we need to support millions of unemployed indefinitely – and even give them make-work jobs – without running the risk of a default. We own the money and can print as much of it as we need to.
Now just imagine Jamie trying to convince a hedge funds, pension fund, or sovereign wealth fund to buy US bonds on this basis. We will never repay you for what we have borrowed, Mr. Wen! Can we expect China to buy US bonds when a noted American economist is saying, essentially, that they are worthless? In fact, this argument is for you alone; Jamie does not intend anyone with access to the amounts of cash necessary to fund the federal budget deficit to seriously assume they will not be paid – unless they are driven into the arms of Washington by some greater fear. It is a dog whistle: an argument for us sheeple that is heard by China in its exact opposite form:
Don’t worry, Mr. Wen, they are so ignorant of economics they will never catch on that you only give us money because you know we are mortgaging their future wages!
We’re not going to be sheeple, so we will assume only what makes sense: China loans us money on the reasonable assumption that it will be repaid. There is some risk that it won’t, but we have to assume that this is a prudent risk when compared to any other use of the money. We can even assume that the risk of US default on its debt is much lower than on average, since it owns the world reserve currency. And we are all now on the same page – no more dog whistle economics. Mr. Wen can sleep soundly at night knowing his vast hoard of US dollars will have value based on the US promise that your future wages will make good on our present consumption of Chinese manufactured goods.
That is, he can sleep soundly provided he is as dumb as a box of rocks, and, provided everyone else in China is just as dumb – so dumb, in fact, that they can’t reach the same conclusion that Steve Keen reached in the post that we quoted in the previous segment. For Mr. Wen to sleep soundly he would have to ignore the clearly onrushing debt servicing crisis.
This debt servicing crisis, as Jamie explains, does not result from the possibility of default, nor from insolvency. And, we can add here that it also does not result from China’s refusal to hold our debt. We actually assume that China will not only go on buying our debt, but that it has no choice but to go on buying our debt.
To understand why, consider that mortgaging your future earning to pay for present consumption means that future work must be pledged to pay for this present consumption. To put it another way:
There is not enough work under present conditions to absorb the massive amount of output society is able to produce.
Jamie, does this sink in yet? Does it yet occur to you that under present conditions we are so productive as a society that there is physically not enough 40 hours a week jobs available to absorb all the output we can produce. And, that this is not just true for the United States, but China as well – which is why they keep funding our consumption of their output. They have no choice. And, what is true for the US and China, is also true for Greece, the PIGS and everyone else.
So one by one each will experience a debt servicing crisis, as Steve Keen predicts. The US will be the last man standing only because it holds the world’s reserve currency, but, eventually, this too will give way to a massive hyper-inflationary collapse, as the US tries to fund its debt with an explosion of fiat.
Mr. Wen knows this, which is why he is not getting much sleep these days.
Sooner or later working hours will have to be reduced, Jamie. Our only choice is whether we are willing to adopt shorter hours proactively, or whether it will be imposed on us in the form of a terrible economic incident. You need to stop fighting the last depression and join the rest of the world in the 21st Century.
But, do hurry, there is not much time left.