I’m familiar with this clip. I believe you’re misinterpreting it.
Greenspan is correct that under a fiat system, we can create all the money we want. However — and to paraphrase Saul of Tarsus writing in 1 Corinthians — “just because something is legal doesn’t mean it’s wise.”
Taken to its logical conclusion, Greenspan is basically saying that there is no debt or deficit, and that the government needs no income taxes from its citizens to stay afloat; because the government can just print up (figuratively speaking) whatever it needs at any time. We can wipe out poverty. Fund universal health care. All for “free”.
And if that sounds insufficiently irresponsible, there were certain semi-respected voices suggesting it a few years back during one of the debt ceiling debates:
Trillion dollar coin - Wikipedia
The trillion dollar coin is a concept that emerged during the United States debt-ceiling crisis in 2011, as a proposed…
And not to digress, would he be alive today, I have no doubt that this strategy would have merited a chapter in a revised edition of this book:
Money Mischief has 469 ratings and 30 reviews. Jeff said: Friedman is excellent at condescending to the level of people…
So, the question is begged: Why CAN’T the government just hit a button, create a load of money, and buy our way out of our own financial messes?
Well, a fiat system relieves the necessity of having each circulating dollar backed by a hard commodity. However, it must be backed by *something*, or else Zimbabwe’s currency would be worth the same as the greenback.
So, what is the backing? Well, fiat money transfers the “backing” from a defined commodity to the productive capacity issuing agency. Ergo, the dollar is worth what it is on the FOREX markets because of the strength of the US economy going forward, and the world’s confidence in the U.S.’s ability to meet its future financial obligations by taxing that productive capacity.
The dollar, in many ways, has become akin to a share of stock in the US of A.
A gimmick which abuses fiat money, like a trillion dollar coin, or like just creating money to meet the rather huge entitlement obligations (Medicare is much worse than SS, to be sure) abuses the world’s trust in our economy. And if that trust comes under question, the value of the dollar against other currencies could fall. Dramatically.
For all our fiscal irresponsibility, our productive capacity is still the best in the world, and we still have the ability to meet our obligations, especially in comparison to other developed nations. But just because the currency markets haven’t punished us *yet* does not mean that they won’t. Or never will.
When the Social Security Trust Fund is depleted in 2036, and benefits start having to be paid out from the incoming payroll tax only, benefits will drop by 30%. Seniors all over the country will lose their homes and be tossed upon already strained welfare systems. One hopes that the politicians will do something before it’s too late, but with the left galvanized against any decrease in benefits (even if the decrease affects future retirees only), and the right galvanized against any taxation increase……..one cannot be sure.
If the politicians cannot agree on fixing something that is relatively easy to fix (SS can be fixed by modest increases in future retirement ages, COLA calculation changes, and altering the income limits) they are never going to agree to use a “trillion dollar coin” or similar gimmick to pay benefits.