Rickards: You can’t print your way out of debt
Reader note: This is Jim’s second piece in an ongoing debate with Warren Mosler about the economy. Here are links to previous posts in the series: Writer biographies / Mosler #1 / Rickards #1 / Mosler #2. There will be one more post from each writer.
Before I lay siege to Warren Mosler’s remedies, let me say he’s a brilliant guy I’ve admired for 25 years going back to his days at AVM. I got reacquainted in 2004 when I lived in St. Croix and Warren ran for Congress from the Virgin Islands. His campaign ads were 5-minute infomercials; tutorials on economics and gems of sound fiscal advice. But this is a debate, so let’s begin.
Warren makes eleven points and I agree with two – the elimination of payroll taxes and converting banks into utilities. Payroll tax elimination spurs consumption and stimulates job creation. As for banks, we need them, we just don’t need casinos that call themselves banks. Bring back Glass-Steagall, separate deposit and loan functions from proprietary trading and banish the latter to hedge funds. Speculation should survive on its own dime.
I don’t need to take the rest point-by-point because they’re the same thing – an unlimited belief in the Fed’s power to print money. Warren calls for a $500 per capita state rebate, a federal job for all takers, direct Treasury funding of housing, unlimited deposit insurance, no debt ceiling, Treasury overdrafts at the Fed and federal purchase of foreclosed homes. He doesn’t propose free ice cream for children but I don’t see why not; just print some money and go for it!
Warren’s program would work if the world had as much faith in the dollar as he does. But it doesn’t, and neither do the American people. If we were all captives of a government dollar monopoly with no alternative, then maybe his plan would work for awhile. But we do have alternatives in land, art, commodities and the oldest form of money – gold. It’s no coincidence that when FDR debased the dollar in 1934 he simultaneously banned private ownership of gold. He knew citizens would hoard gold when he trashed the dollar so he made that illegal. One of Reagan’s lasting gifts to the American people was a law in 1985 which made U.S. mint gold coins available to average citizens. Now when the Fed cranks up the printing presses, citizens have a choice. Foreign central banks have the same choice in terms of gold bullion and commodities such as oil and copper which serve as stores of value and industrial inputs.
Here’s where complexity theory comes in. Each citizen, company and central bank is an interdependent agent with a threshold for dollar rejection based on the thresholds of others. Some will not flee the dollar unless many others go first. But some have already bought gold and others are on a hair trigger. What does the complete system look like? Are we in the critical state where a small shift brings the entire edifice crashing down – the tipping point? It’s impossible to say, but we’re certainly closer than ever. Warren’s cavalier approach to printing money as the cure for all ills guarantees the greatest disease of all – destruction of the dollar.
James G. Rickards is a writer, lawyer and economist. Twitter.com/JamesGRickards.