Civil War, Part II

[Jester]

What you need to look at is how the US government will cover the 4 trillion they spent this year, and the additional 50 to 60 trillion they will spend over the next 10 years. How many bonds can the US government sell? How much money can the Treasury print? If it doesn't come from taxes, if has to come from either selling bonds, or printing money, right?

Wikipedia has federal spending at 3 trillion this year (Assuming you mean the last full fiscal year, 2008). Where does the extra trillion come from? Or is that projected 2009? Or last 12 months?

Taxes would be the obvious first port of call, if the government were to face serious future shortfalls. Unless the Fed is staffed with gibbering baboons or California voters, I can't see them picking hyperinflation over a moderate tax increase.

Plus, for whatever reason, people still trust US bonds, and seem happy to buy them. That's not something that can continue indefinitely, but so long as the US government still has taxation powers over an enormous, relatively lightly taxed economy, I think we can count on that remaining true, at least in the medium term of a decade or so.

I wouldn't say there aren't tough times and hard choices ahead. There are, especially the short-run issue of fixing the banking system and restoring employment, and the long-run issue of how to reverse deficits while dealing with an aging population. (Hint: cheaper health care system.) But my bet is that the US economy isn't going to implode from hyperinflation unless the government makes some exceedingly strange decisions. The Austrian argument seems to be that they'll "just have to" print money, but I think taxes and increased will be enough, at least for now.

At the broadest level, this is the situation in historical context:



You're not even pulling in as much, relative to GDP, as you did during Reagan's years. There's slack in the system yet, and until that slack is used up, firing up the printing press to pay debts simply doesn't make sense. Moderate inflation? Yes, eventually. Hyperinflation? No.

-Jester