The inestimable Jim Grant of Grant’s Interest Rate Observer reminds Washington Post readers that the United States has defaulted on its debt in the past and will do so again in the future. Almost as educational as Grant’s op-ed are the accompanying comments from beltarians who are simply shocked–shocked!–that there are people beyond its border who study unapproved financial history and take notions such as government default seriously.
Grant’s op-ed is a useful companion to Peter Klein’s Mises Daily, also published today, which also places government default in perspective.
In other words, the value of money has become an instrument of public policy, not an honest weight or measure. In such a setting, an old-time “default” is impossible. How can a creditor cry foul when the government to which he is lending has repeatedly said that the value of the money he lent will shrink?
The post-1971 dollar derives its value from the stamp of the government that issues it. Across the seas, this imprimatur is starting to look a little tenuous. Lend us your dollars for 10 years, the Treasury proposes. We will pay you the lordly interest rate of 2.7 percent per annum. And at the end of those 10 years, we will hand you back your principal, which will almost certainly buy less than the money you lent.
This is the unsustainable conceit of the world’s superpower-cum-super debtor. By deed, if not audible word, we Americans say: “The greenback is the world’s great monetary brand. You have no choice but to use it. Like it or lump it.” But the historical record of paper currencies is clear: Governments always over-issue it. The people finally do lump it.
Read the whole piece here.