Saturday, July 9, 2011

Printing Press Beats Debt Ceiling

Suppose that debt ceiling Armageddon comes to pass. The government is barred from issuing debt and what it's legally required to spend exceeds what it's legally allowed to produce. But since it's the federal government, there's still a way to get money. Ben Bernanke in 2002:
But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.
Of course, Bernanke was talking about ways to fight against deflation, not ways to avert debt ceiling catastrophe. But right now we're in a time with dangerously low inflation leading to ridiculously high unemployment. There's no better time to print some money.

1 comment:

yoyo said...

This its not a Serious proposal.