We Can Always Print Money to Do That

This piece was originally published on my personal site here.

"The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default." -- Alan Greenspan, August 7, 2011

Is Mr Greenspan the greatest troll alive?  Following this quote, we can only hope that's the case.

It's certainly true that we could just print more and more and MORE money to pay off the government's $14 trillion+ debt.  Actually, we wouldn't even need to physically print anything -- we'd just add a few zeros to some balance sheets here and there and then set up a some wire transfers to our various lenders.  Voila!  Problem solved.  Remind me again why we had that whole debate last week?

The difficulty here -- and presumably the reason why we haven't taken advantage of this ostensibly simple solution already -- is that this would cause massive overnight inflation, probably collapse the dollar, and generally wreak havoc on the world's economy.

See, whenever you just print huge quantities of money based on nothing, this results in devaluation, or inflation, of the unit of currency. The effect of the very policy Mr. Greenspan recommends may be clearly seen in the history of our money's value over the course of the last 100 years of the Federal Reserve's print-happy ways.  The dollar's worth has declined to less than five cents of what it was at the beginning of the 20th Century.