What’s Wrong With This Image?

Pop quiz kids.  The following image is from Paul Ryan who appears to be on a perpetual campaign to scare Americans into believing that we’re Greece.   And he keeps making a really basic error in this campaign.   Now, can anyone spot the odd man out in this picture (h/t Joe Weisenthal):

If you guessed the USA then you’re right.  You don’t win a prize because we don’t offer prizes here at MMR for understanding basic macroeconomics.  The difference of course, is that the USA is the only currency issuer listed on this image.  The others are all European currency users.  Why does it matter?  Well, primarily because a currency issuer can never “run out” of money.  So their debt markets aren’t inhabited by investors who are perpetually fearful about receiving payments.  Being a currency issuer puts the government in the driver’s seat in many ways and reduces various economic risks when it comes to government policy.  All these European countries, however, have a real solvency risk because they can’t print the currency that they need to pay their debts.  They’re now relying largely on politicians in Germany to ensure that the ECB continues to keep the insolvency scenario off the table.   And the austerity is the trade-off.  It’s sort of like having a gun held to your head and agreeing to have your arm cut off (so you can continue to live) as opposed to just being shot in the head.   Either way, you’re likely to do, but Europe hasn’t quite figured this out yet….My guess is they will sooner or later.

But the key point here is that being a currency issuer matters.  A LOT.  And to compare a currency issuer to a currency user is a colossal mistake.  One that the Chairman of the House Budget Committee should NEVER make.  So, you don’t win a prize, but you do get to brag to your friends that you understand macro better than Paul Ryan.  In fact, your prize from this might just be a worse economy in the years ahead assuming this sort of thinking comes to move the policy needle.  And in that case, you might want to just stock up on beer so you can give yourself that “prize” when the economy goes into the tank again and you look back and say “we should have known better!  Wait, some of us DID know better!”  But hey, at least you’ll be drunk through most of it so that’s some consolation, right?

Comments

  1. Where the f*ck is the Facepalm emoticon?

    • Dunce Cap Aficionado says:

      Will ASCII art suffice?:

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  2. I believe many of dumb folks in congress know that the US can not go broke; the FED is an act of congress; Appropriations is an act of congress; the debt ceiling is an act of congress. FUD (Fear Uncertainty and Doubt) regarding the Debt Ceiling reins supreme for weeks/months then presto the problem is solved by raising the ceiling overnight (with a lot of political back scratching and deal making transpiring in the corridors of DC).

    Debt ceiling debate, America is broke, America will become Greece is all Political Theater using Fear as a motivator. Comparing the US Gov’t to a household or business balance sheet paints the picture of insolvency and bankruptcy into the minds of the voter; again using Fear as a powerful motivator in the Political Game.

    If the masses (voters) could understand the simple MMR facts, then they could call BS on all the political theater and demand change and focus on the important issues (hint: NOT Roe v Wade or contraceptives … ).

  3. I think people like Paul Ryan are plenty smart enough to understand that the US can’t actually go bankrupt, and can create as much money as it wants to pay debt etc.

    However, Ryan knows it is more useful to use the bankrupty arguement to advance his political agenda, and he would probably also disagree with MMRers about the size of deficit that would cause inflation to be a problem.

  4. Speaking as a Republican, I’ll be the first to say that Paul Ryan really is some of the worst humanity has to offer. There isn’t a more loathsome public figure in America (excepting, perhaps, that guy who kidnapped Jaycee Dugard). Why everyone in Washington is gay for the man is a mystery to me.

    His plan is a cartoonishly dishonest bait and switch. Its a deficit reduction plan that doesn’t actually cut the deficit. What it does do is cut income security spending for the poor simply as a means to provide political cover for cutting income taxes for the wealthy.

    If Ryan just wanted to cut taxes, I wouldn’t really care and I wouldn’t blame him, re-election campaigns don’t fund themselves. But to take the completely unnecessary additional step of what George W. Bush ( to his credit) criticized as “balancing the budget on the backs of the poor” is just plain rotten.

    • I’m trying to fit into that comment how you are a Republican… :).

      Naw, but I know what you mean… I’m sure in about 10 years it will be the Democrats who are simply nausiatingly awful on economics and the repubs who are “meh, ok.”

      Not today, though.

  5. ” Well, primarily because a currency issuer can never “run out” of money.”

    It can if the currency it issues stops being accepted as money. At the end of hyperinflation this is what the government faces. They can print currency but nobody accepts it as money any more.
    http://howfiatdies.blogspot.com/2012/03/how-can-government-run-out-of-money.html

    • Cullen Roche says:

      That’s not “running out of money”. Either way, we agree totally. If people stop demanding the currency we’ll have hyperinflation.

      • If you look at a government after hyperinflation has finished getting everyone to stop using their currency they print they are far more “out of money” than Greece. They are broke broke broke. A very real danger that the government collapses.

        • Cullen Roche says:

          Okay, it’s a semantic point. We agree that a currency can die. If you want to call that “running out of money” then fine. It’s not really, but it doesn’t matter for this discussion because we agree on the end result, just disagree on the terminology.

          • Why do you say “it is not really”? These governments after hyperinflation are really out of money. Really really.

            • Cullen Roche says:

              Let’s do what we always do with these debates and revisit them in a year. You’re on month 20 of being wrong so far so if you’re ever right know where to find me. :-)

              • I am not wrong on this point. Any government, even one that prints its own currency, can run out of money.

                • Cullen Roche says:

                  Technically, the monetary system dies. It doesn’t run out of money. You wouldn’t say the human body “runs out of blood” when it stops functioning. It dies, but it doesn’t run out of blood. Same thing….But it’s a semantic point and we agree on the end result that printing too much money can potentially lead to hyperinflation so I don’t know what you’re getting at….

                  • What I am getting at is that the claim, “A currency issuer can not run out of money” is not true. This is a core falsehood of MMT and MMR. You guys should not say this lie. If you want to say “a currency issuer can not run out of currency” that would be honest. But they can and do run out of money. If Greece started printing drakmas again but still had spending twice their taxes, do you think they would get buyers for their bonds? Do you think they would get hyperinflation right away? Would they be any better off if they started printing their own money now? You really think if Greece just turned on their own printing presses they would not have to worry about running out of money ever again?

                    • Cullen Roche says:

                      the “money” in that statement is obviously the currency of the issuer. Gold is money. Clearly, I am not saying that the govt runs out of gold. I just assumed this was an obvious point….Which it is….You’re just making a semantic point….

      • They don’t completely stop demanding the currency until the hyperinflation has finished off the currency. That is the typical end of hyperinflation, where nobody will accept that currency any more. Only then does the typical government stop printing it.

        The start of hyperinflation seems to be when people stop using the currency as a store of value and stop buying government bonds. During hyperinflation the currency is still used for transactions, but not as a store of value. At the end it is not even used for transactions.

  6. Cullen Roche
    That’s not “running out of money”. Either way, we agree totally. If people stop demanding the currency we’ll have hyperinflation.

    If a government that was spending twice what it gets in taxes finds the currency it prints is no longer accepted as money, how are they not “running out of money”?

    • Cullen Roche says:

      If people stop drinking rain water does that mean the sky “ran out of water”? No. It just means people stopped drinking the water….It doesn’t mean the sky stopped supplying rain water or that it “ran out”….

  7. Cullen Roche
    the “money” in that statement is obviously the currency of the issuer.

    It is a deceptive statement as normally stated. If you obviously mean to say that a currency issuer can not run out of currency, then you should say that.

    • Cullen Roche says:

      It’s only deceptive if you want to misconstrue it for semantic purposes. Which is precisely what you’re doing.

      Vince, I respect your argument, but you’ve been dead wrong for years now. I suggest you come back when you have more evidence supporting your case.