Alan Greenspan half-smilingly argues that U.S. Treasury bonds will never be defaulted because “we can always print money.” How reassuring.
It’s one thing to pull money out of the proverbial magic cookie jar and place it in bank ledgers (“high-powered money,” or QE1, QE2) while people are substituting consumption with saving, fearful of the near-term prospects (increasing their “demand for money”). It’s quite another to do that while people expect prices only to rise. Massive increase in the supply of money (“printing money”) while people anticipate inflation (lowered “demand for money”) can lead to runaway inflation, hyperinflation.
America hasn’t experienced that since the Civil War. But Germany has (after World War I), as has Zimbabwe (just recently). It can ruin a whole way of life.
After Germany’s hyperinflation, Nazism arose.
Greenspan may have been trying to make a subtle point, but the blunt point remains: Default is likely, for inflation itself serves as a form of default. Under Greenspan’s scenario, the Federal Reserve, conspiring with Treasury, would, by “simply” printing money, pay debt with decreased-value dollars.
The ancient Chinese had a perverse form of torturous execution: Death by a thousand cuts. Inflation is like that, it’s torture for almost everyone, default by a . . . gazillion devaluations.
The only way around this is to make very different cuts — in federal spending.
That’s not torture, that’s the road to recovery.
It’s unlikely, of course, because, to politicians and insiders, cutting spending seems like torture.
This is Common Sense. I’m Paul Jacob.