A New Kind of American Exceptionalism

Money, Debt, and Borrowing Can Be Infinite

History has presented us with numerous gadflies, but few so spooky as Nero who played his fiddle while Rome burned in a great conflagration.  Presumably he was amused and entertained by the spectacle of such destruction.

But when it comes to spooky "gadflyness" the recent, sage pronouncements of New York Mayor Bloomberg rival Nero's inanity.  Whatever other inadequacies Mayor Bloomberg might labour under, profound ignorance of the history of human civilisation must rank right up there.  Assuming the media report is accurate, it is hard to credit such folly to the man.

In the first place Mayor Bloomberg was attempting to assuage the fear of an impending collapse due to the US government cutting back on some government spending.  Apocalyptic fears had to be calmed.  Enter Mayor Bloomberg:

At midnight tonight, a bevy of steep spending cuts will hit the federal government unless Congress and the White House agree to an alternative deficit-cutting proposal. Although the national media has been relentlessly focused on this deadline, Mayor Michael Bloomberg said it will only affect New York City if the so-called “sequestration” continues for a significant length of time.

“It depends on how long,” Mr. Bloomberg said on his weekly WOR radio show with John Gambling. “If it lasts a few weeks, no. If it does, yeah. We get 10 or 12 percent of our budget from the federal government, not all of that is going to be cut back, but there would be effects–not good effects. But in the context of, ‘Is anything going to change tomorrow? Are we going to run out of money tomorrow?’ I’m sure I’ll get that question at the [next] press conference. No.”

OK, no need to panic.  At least not immediately.  Thanks, Mayor.  Great to know that you are standing proudly at the helm of the great ship of state, not out on the veranda fiddling with glee.

Or maybe he is.  Bloomberg went on to cast more of his oleaginous balm on troubled waters.  The huge US fiscal deficit was no problem.  Not really.  Why?  Because the supply of other people's money was infinite and the US government could owe an infinite amount of money.  

. . . .  Mr. Bloomberg argued the United States could owe “an infinite amount of money” and there is no specific amount that would cause the country to default.

Really.  So a hundred trillion dollar debt would not bring the country to ruin.  No.  Not at all.  Other nations would continue to lend us money forever, with no limitation, infinitely. Try that argument with your local bank.

Oh, but that's not a fair comparison.  National accounts are different from household accounts, the Sage of New York gravely informs us.

"We are spending money we don’t have,” Mr. Bloomberg explained. “It’s not like your household. In your household, people are saying, ‘Oh, you can’t spend money you don’t have.’ That is true for your household because nobody is going to lend you an infinite amount of money. When it comes to the United States federal government, people do seem willing to lend us an infinite amount of money."

Why, according to this gadfly, would people, corporations, and other nations continue to lend money to the United States, forever without limitation?

… Our debt is so big and so many people own it that it’s preposterous to think that they would stop selling us more. It’s the old story: If you owe the bank $50,000, you got a problem. If you owe the bank $50 million, they got a problem. And that’s a problem for the lenders. They can’t stop lending us more money.”

Mmmm.  Did that argument work for Greece, Spain, Italy, Ireland?  Oh, but we are different, Mayor Bloomberg intones.  We are the wonderful, big, most-wonderful-nation-on-earth United States.  We are as big and important as Rome, back in the day.  Our debts can mount up without limit because the lenders have no option but to continue to lend.  It's all a merry party.  Let's all  go play our violins.

We suspect Mayor Bloomberg knows that he has just mouthed a barrow full of old cobblers.  Anything to keep the people calm.  But if he really believes such tosh he must be one of the gaddiest gadflies on the planet.  Either way he makes spooky Nero look like an amateur. 

Let us never forget: in a democracy the people deserve such foolish leaders.  They were stupid enough to put them there in the first place.