Published: 03/09/2021 5:00:01 PM
$ 1,900,000,000,000! Oh! My! Goodness! That’s a lot of zeros! That’s the price to pay on President Joe Biden’s US bailout pushing its way through Congress and by the time you read it will likely have been signed into law.
How on earth can we afford that kind of expense? The national debt will explode! Our children will pay for this irresponsible financial behavior for the rest of their lives! The country will be forced to default on all this debt, and we will turn into Greece, I tell you, Greece!
At least, that’s what some are saying about the current administration’s desire to spend that kind of money on programs that will benefit the non-wealthy, non-corporate parts of our country – in other words, the most of the population.
But Biden’s plan will put extra money in the pockets of those who really need it. This will give the unemployed an additional financial boost. Among other things, it will increase child tax credits, lifting millions of families out of poverty. It will fund COVID testing and vaccination programs, help small businesses, state and local governments weather the economic crash of the pandemic. And it will do a lot more. It will be money well spent, right?
$ 1,500,000,000,000! This is what the previous administration added to the national debt in 2017 by cutting taxes on the few – the rich and the corporations. Funny, these same people, who regularly tear their hair at the very thought of increasing debt, did not cry out.
The big question is, how does it all work? Can our government spend large sums of money when the need arises? And the need is always there, from healthcare and climate change to education and infrastructure, the list goes on. Should the government budget its finances like a typical household does? After all, we as individuals, as families, cannot spend whatever we want when we want, otherwise we will surely turn into Greece.
OK, so what does Greece have to do with all of this? I’ll get to that in a minute.
In my house, we have money coming in, money going out and money borrowed, like almost everyone. We are fully aware that we should not be spending more than what we earn, otherwise we will have to borrow to pay for these expenses. And we know that if we borrow too much, we might not have enough dollars to make the monthly payments on that debt. And then we could end up in default and bankruptcy and lose everything.
So basically the dollars go in and the dollars go out and they have to balance out or we have problems. We’re just users of those dollars, unfortunately. We cannot create more when we lack some, they are not ours.
But the federal government is not a household at all. He can never run out of money because he can create more dollars whenever he needs to run the country and that is what he does. The US government is the sovereign issuer of our currency, the dollar. The same goes for any country that has its own currency, like Britain, Canada, or Japan, to name a few.
Now about Greece. She was very close to defaulting on her debt during the last global financial crisis and as a user of currency (of the euro) she had to be bailed out by the European Central Bank and the IMF. And because it had no currency of its own, Greece was at their mercy, and the Greek people suffered terribly from the forced spending cuts which only exacerbated their financial problems.
The US government will never find itself in such a situation, as it controls its own currency and, if necessary, can create new dollars when it needs them. I don’t know about you, but I wish I could do the same. But it’s not legal, so I don’t.
Of course, there may be limits to what the government can spend and a significant limit is the threat of rising inflation. But the government is keeping a close eye on inflation and has a number of ways to deal with it. For the most part, the US government can spend its dollars on programs that serve its people without worrying about piling up too much debt, especially in a time of enormous need like the one we find ourselves in today.
I am not an economist, but I find the subject fascinating. I have found the answers to some of my questions in an area of economic thought called Modern Monetary Theory, or MMT, although what I have written about it here is only a very simplistic overview of how it works. What I have learned so far is that when you stop thinking about the federal government budget the same way you think about your household budget, your understanding changes drastically and you realize that these are two completely different things.
So, I call on President Biden and our elected members of Congress – adopt and sign into law the US bailout and do it now. Then start working on the next big bill to further fund the needs of the many, not just the few.
Karen Gardner, of Haydenville, can be contacted at [email protected]