Wednesday, January 26, 2011

Paul Ryan and Bankruptcy

Paul Ryan delivered the Republican response to President Obama's State of the Union speech last night. In it he called for drastic cuts in government deficits.

He also condemned Obama's healthcare policy with this exact phrase:

"Health care spending is driving the explosive growth of our debt. And the President’s law is accelerating our country toward bankruptcy."

Later he compared the U.S. to Greece and Ireland, two European nations who have recently made austerity measures because of debt-related currency crises. Here are his exact words:

"Just take a look at what’s happening to Greece, Ireland, the United Kingdom and other nations in Europe. They didn’t act soon enough; and now their governments have been forced to impose painful austerity measures: large benefit cuts to seniors and huge tax increases on everybody."

"Their day of reckoning has arrived. Ours is around the corner. That is why we must act now."

Whether you are in agreement with Ryan and the Republicans ideologically or not, The United States CANNOT go bankrupt and is NOT LIKE Ireland or Greece.

The U.S. controls its own currency, it is completely sovereign in its currency, the dollar. We issue debt securities by choice! not because we have to! The U.S. can print money or, more accurately, change numbers in bank accounts to pay back any debt it may have accrued to you, me, a business, or even China! NO amount of debt or deficits can cause the US to go bankrupt. (Again read Myths about the Deficit for the consequences of deficits.)

How are we not like Ireland or Greece? They do not have control over their own currencies. They voluntarily gave it up to join the EU. The European central bank now controls their currencies. Ireland and Greece CAN go bankrupt because they can't change numbers in bank accounts to pay back debt. They must issue debt securities to obtain more Euros.

So whether you are for or against higher deficits or more government spending, remember: the U.S. cannot go bankrupt and is not like European nations who voluntarily gave up their currency sovereignty.

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