On Monday morning, presumptive Republican nominee Donald Trump gave a terrifying preview of how he’d handle America’s monetary policy as president.
“This is the United States government,” he said. “First of all, you never have to default because you print the money.”
“I hate to tell you. So there’s never a default.”
Take a moment to let that sink in.
Trump believes that our government can never default on its debt because it can just print more money.
If that were how money actually worked, we wouldn’t have any national debt in the first place, because our government would have just printed the money it wanted instead of borrowing it.
Seriously, this proposal is so economically ignorant it is difficult to know how to respond. It’s the sort of thing you’d see if any half-decent economist got a guest writing gig at The Onion. If there were no video evidence, I’d be convinced it was satire.
For starters, the risk of economy-killing inflation is, to borrow Trump’s signature word, HUGE. According to the Federal Reserve, there is about $1.45 trillion in circulation right now, and Trump is suggesting staving off $19 trillion (and counting) in debt by printing more cash.
All that new money would not magically create new wealth. It would simply dilute the purchasing power of the money that already exists—in other words, it makes the cash you have in your wallet worth less.
This is called the “inflation tax,” and it hits poor people the hardest. As their money loses value, it becomes more and more difficult to afford basic necessities. A wealthier person might be able to weather Trump’s laughable idea, but for those living paycheck to paycheck, it would be a devastating financial blow.
And it’s not like this is some secret only elite economists understand. Every middle schooler knows about the hyperinflation of Germany’s Weimar Republic, where just printing more money made cash so worthless that people burned it for heat and gave piles of it to their kids to use as toys.
Indeed, as financial analyst Guy Wolf explains at The Guardian, “If wealth could be created by printing money, Zimbabwe would be the richest country in the world and schoolchildren would be learning about the Weimar economic miracle. The fact that ‘spend and print’ seems so favoured by politicians suggests that they do not understand the cost of quantitative easing.”
This is something Ron Paul, America’s most famous critic of the Federal Reserve and its inflationary currency, has been saying for years. He once again took on this idea that printing more money is the solution to debt in an interview just last month:
[There’s] this idea that if you spend more money by the Congress and then the federal government prints the money to pay the bills, then all of a sudden a lot of people are wealthier. But this actually decreases wealth, because what it does, it transfers wealth and some people do benefit, but some people will lose wealth because they don’t earn what they should earn in the savings account. And therefore somebody will benefit and at the other time others will suffer. What it does, it manipulates the business cycle, it causes booms and busts, unemployment—and then the government gets much more involved and they do the bailouts […]
[B]y doing this they actually dilute wealth, because if you have a savings account and they print a lot of money, your money in the bank goes less, and right now you don’t earn any interest—at the same time they are talking about negative interest rates. So this idea that you can central economically plan is a farce, really.
And speaking of Ron Paul, Trump’s comments put the final nail in the coffin of any suggestion that these two have anything in common (mutual frustration with the GOP establishment aside).
Monetary policy is Paul’s signature issue, perhaps second only to his principled noninterventionist foreign policy.
For consistent Paul supporters, Trump has now failed wildly on both counts.