In a pre-Tax Day jeremiad at Time, James Grant whined about the size of the national debt. A lot of the attention has been focused on the misleading graphic on the righthand side of the article, boldly proclaiming that each and every American owes about $43,000 in debt.
More important is this outline:
The Federal Reserve is the government’s Monopoly-money machine. It sets some interest rates and influences many others. It materializes dollars. It regulates–now regiments–the nation’s banks. It pulls levers to make the stock market go up.
Congress is the source of the Fed’s power. The Constitution is the source of Congress’s power. The parchment enjoins Congress to coin money and regulate the value thereof. The founders viewed money as a scale or yardstick, something that measures value. The Fed views money as a magic wand, something that creates value.
Dollars aren’t so much minted these days. Rather, they issue from the Fed’s computers in billowing digital clouds. The cost of producing them is only the energy expended on tapping the keys. The Fed emits these electronic greenbacks to attempt to control the course of economic events. It’s a heaven-sent monetary system for a big-spending government.
We can keep that up as long as the demand for dollars holds. As of this writing that’s holding and will continue to do so as long as China, Japan, South Korea, etc. continue to hold massive electronic accounts full of dollars—their strategy for maintaining permanent trade surpluses with us.
Whether we should be sacrificing the real economy—the part of the economy that makes things you can actually touch—to the financial economy is another question entirely.