Oct 23

Stephanie Kelton: Modern Monetary Theory on Debt and Deficits

After the Great Debate between Sanders and Cruz on the Republican Tax Plan The Real News interviewed Stephanie Kelton for her reaction.

Why won’t we end up like Greece? What did Greece do that got Greece into so much trouble? It isn’t that Greece borrowed and had high public debt that got Greece into trouble. It’s that Greece stopped borrowing in its own currency. Remember, before Greece joined the Economic and Monetary Union, it’s currency was known as the Drachma. That was the Greek currency, and it was controlled by the Greek government. Well, when Greece decided to join the Economic and Monetary Union, the Euro, it gave up the Drachma and it started spending and borrowing in this Euro currency, which it does not control. So all of a sudden, Greece turns itself basically into the state of Georgia, if you like. And Greece is now promising to pay Euros when it borrows. The problem is, Greece doesn’t create the Euro. And so that’s where Greece’s problems lie.

The U.S. is in debt in U.S. dollars. And the cool thing about owing people U.S. dollars when you’re the U.S. government is, you’re the only game in town. Nobody else can create the U.S. dollar. It can only come from the United States government, which is why you can never run out. You can never have bills that you’re unable to pay. You can never be forced into default. You can never be forced to go to credit markets and pay higher and higher rates of interest to get your currency because you’re the issuer of the dollar. It’s completely different thing.