Could the US Run Out of Money?

The US could never run out of money, at least according to one independent candidate for US Senate in Connecticut. In fact, to back up his supposition, Warren Mosler is offering $100 million of his own money to put toward paying down the federal budget deficit if any if any sitting Congressman or Senator can prove him wrong. Though it is not entirely clear, it seems that Mosler believes that simply printing money is the solution to problems ranging from future social security insolvency to our tremendous debt to China.

It seems highly doubtful that Mosler will ever be forced to make good on the bet. In addition to the the fact that it is unlikely that a lawmaker would validate Mosler by going toe to toe with him, he is technically correct. Of course the government could print more money. Indeed it has done so during the current recession, and has plans to fire up the printing presses again before the year is over. Therefore, the country will never 'run out' of money. However, to suggest that printing money is a panacea for the ills of the American economy without consequence is foolish at best.

There are just too many problems with such a concept to properly address them all in detail, but a few are so self-evident that they deserve mention. First among equals would have to be the inevitable wave of hyperinflation that would engulf the country. The breakdown of international relations with countries that hold our debt, which happen to be major trade partners China and Japan as well as the countries the US gets its oil from would be another. The dollar would lose its status as the international currency of exchange, eliminating one of the safety nets that policymakers have utilized without explicitly noting its existence. In addition to problems for the US itself, it is not a stretch to think that in our highly systemic and mutually dependent world, such a breakdown in currency controls in the foremost trade partner of most of the countries of the world would cause nothing short of chaos in the global economy.

Of course Mosler is no economist (though presumably, and this is admittedly an assumption, he has come across some basic theories of economics in his role as a hedge fund manager). Luckily, he is also unlikely to be a Senator any time soon either; the Independent candidate was not invited to the latest debate between the Democratic and Republican offerings and poll numbers suggest that nothing short of both of those candidates dropping out of the race would be enough to lead to a Mosler victory.


  1. Don't confuse quantitative easing with federal deficit spending.

    deficit spending adds income and net financial assets to the 'non govt' sectors. QE does not and hence does nothing but shorten the maturity of govt liabilities, lower the term structure of interest rates a tad, and reduce interest income of the private sector (the fed holds the bonds its buys from the private sector and 'gets' the interest)


  2. Thanks for reading and thanks for the comment!

    While I certainly agree with the point on QE being different from deficit spending, I also believe that the money needed for the Fed to make the type of asset purchases needed to stimulate the economy needs to come from somewhere.

    And, if that is true, would it not have the same real world impact as deficit spending? Either way, presumably money would need to be printed to accomplish the goals, or otherwise more bonds would need to be sold, most likely to foreign investors. Either way, I believe some of the problems I noted come into play.

    Any thoughts on the impact of continuing to print money/sell treasury assets without any hope of reigning either in?

  3. As long as our government remains solvent and our bonds are backed by the full faith and credit of the US government then the tap will keep flowing. You'll know when America is running short on cash when the rates go higher than a Sub-Saharan African nation..

  4. Hi Matt, thanks for the response. I think that we are some way from that obviously, particularly as the dollar is somewhat insulated from say, Weimar Republic or Zimbabwe status for many, many reasons. However, even before that inflation kicks in (which is, incidentally one of the goals of the upcoming QE2) there are still other economic and geopolitical concerns that can come from these types of policies. That said, I will grant you that there is a lot you can get away with when you are in the situation the US is in.