Myth of the Fiscal Cliff

This post is about the myth of the fiscal cliff also known as insolvency/debt ceiling debacle.  An attempt to stop it before fiscal cliff lunacy migrates to Australia.

Statement: We can’t keep adding debt to the national credit card.

Response: We can if we want to. There’s no limit on the credit card except the one imposed arbitrarily by parliament.

Statement: If we continue to issue more debt, then our main creditors may refuse to buy it, an event that would lead us to insolvency and severe austerity.

Response: They’ll most probably buy it for the foreseeable future; but if they don’t we won’t be forced into solvency because we can always create the money we need to meet our obligations.

Statement: Our grandchildren must have the heavy burden of repaying our national debt.

Response: We’re obligated to pay all Australian debts as they come due. Since we have an unlimited credit card to incur new debt at interest rates of our choosing, or, alternatively can create all the money we need to pay off debt subject to the limit, without incurring any more debt, our national debt cannot be a burden for our grandchildren unless they wish to make it make it so by stupidly taxing more than they spend. So, let’s educate them well in Modern Monetary economics, so that they never make that mistake.

Statement: There is a deficit/debt reduction problem for the Federal Government that is not self-imposed.

Response: There is no such problem. Since the Aussie government has no limits other than self-imposed ones on spending or borrowing, the level of the national debt, or the debt-to-GDP ratio don’t affect the Government’s capacity to spend Appropriations at all.

Statement:  The Government is running out of money.

Response: The Government cannot involuntarily run out of money.

Statement:  The Federal Government is like a household and that since households sacrifice to live within their means, Government ought to do that too.

Response: No, the Federal Government is not like a household!  Households can’t make their own currency and require that people use that currency to pay taxes.

Statement: The Government can only raise money by taxing or borrowing.

Response: The Government can create money; so it can never involuntarily run out.

Statement: We face a crushing burden of Federal debt.  The debt will grow to catastrophic levels in the years ahead.

Response: This is nonsense.  Federal Spending is costless to the government.

Statement: Australia could be in danger of becoming the next Greece or Ireland.

Response: Greece and Ireland are users of the Euro, not issuers of it. So, their supply is always limited and that’s why they can run out of Euros. Australia is the issuer of Dollars; so it’s supply of dollars is limited only by its desire to create them, and that’s why it can’t become Greece, Ireland, or any other Eurozone nation.

Statement: Fiscal Responsibility means stabilizing and then reducing the debt-to-GDP ratio and achieving a Federal Government surplus.

Response: No! REAL Fiscal Responsibility is fiscal policy intended to achieve public purposes while also maintaining or increasing fiscal sustainability viewed as the extent to which patterns of Government spending do not undermine the capability of the Government to continue to spend to achieve its public purposes.

Statement:  Federal Government austerity will create jobs.

Response: Show us one case where austerity is working?


This is adapted from a Joe Firestone piece.


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