I have often commented about innumeracy among the American people, but nowhere do I find it more-distressing than among those who are of sound mind and reasonable (or better) education.
There really isn't any point in having any sort of debate on government reform, monetary reform or anything of the sort with those who deny arithmetic. It is a complete waste of time to discuss that which cannot work and if your answers do not comport with arithmetic they cannot work.
When it comes to government spending it's quite simple: Government cannot spend, in nominal dollars, more than it taxes. It does not matter one bit whether the money that government is using is theirs (that is, they're a "currency issuer") or whether the money is issued as debt or by pure fiat -- that is, debt-free.
The reason is as I've put forward for years now -- pretty much since I started writing this column, and which I spent a lot of ink on in Leverage: Two compound (exponential) functions will always diverge from one another. If the smaller, that is the component of the larger, is growing faster than the whole it will eventually consume the entirety.
There are no exceptions to this, ever, because this is a fact of arithmetic just as 2 + 2 = 4.
Since a sub-part (e.g. government) can never exceed the whole (the entire GDP of the nation) yet the progression of growth of government spending that exceeds that of output (both in nominal terms) must inevitably do so there is no way such a path can succeed.
Every single person who claims to have a high-school diploma knows this because you all learned it in school.
Our Congress refuses to face this -- both parties, not just one. I have been told that deficit spending will not be stopped -- by Republican leaders, back in 2011 during the "debt ceiling" talks.
Since July 1st of 2011 to March 31st of this year total federal debt has increased by 26.6%.
Since July 1st of 2011 to March 31st of this year GDP has increased by 14.4%.
Federal Debt is increasing at a rate approximately twice that of economic output and this is beginning two years after the end of the "Great Recession"!
It is mathematically impossible to continue doing this; continuation of this policy will fiscally destroy the nation with mathematical certainty.
Yet despite this fact, and that you cannot argue with arithmetic, neither political party will stop it.
It does not matter whether you issue the currency as "debt" or not. If you "print" the money then the destruction in real purchasing power happens just as it does if you issue as debt-backed currency. This impairs economic growth in exactly the same way.
There is, in fact, a greater push-back in the form of compounding interest in that said interest also consumes more and more of your funds if you issue debt-backed currency. It can be argued that this is a positive in that it (should) act as an inhibitor of bad government behavior, even though we have seen that it is entirely ineffective in the present tense.
However, if the government does not deficit spend, that is, if it does not take on debt then there is no impact on government sustainability irrespective of the monetary form.
There are plenty of reasons to like debt-free currency. Philosophically if someone is going to get to the benefit of currency issuance it should be we the people through the government, not private banks.
But -- and this is key -- that debate is utterly immaterial until and unless deficit spending ceases and advancing it as an "answer" to debt-laden nations who are and continue to deficit spend is utter nonsense.
Such debate on monetary form is irrelevant here, it is irrelevant in Greece, it is irrelevant everywhere that deficit spending (whether formally or simply through the expansion of debt) is taking place because if you do not stop advancing government spending in excess of economic output expansion your nation and its economic system are mathematically certain to fail.
America has one advantage over Greece and most of the rest of the EU: We have a piece of our federal, state and local government budgets we can whack off without destroying our economy. We need only enforce existing laws. The answer is found in putting an end to medically-related monopolies and restraint of trade and were we to do it we'd be able to remove roughly $800 billion a year from federal spending alone.
The problem is that we have to take that step and stop the deficit spending now -- while we still can.