Cutting Taxes and Raising Spending Is Amazing – Until It Isn’t

What the United States is doing is amazing.  We are both cutting taxes and raising spending while the economy is growing and the federal deficit is already $500 billion.  This will raise the deficit to more than $1 trillion a year (did I say, “while the economy is growing”?).  And it looks like we might get away with it.  It’s amazing.

Other countries couldn’t do this.¹  But when you are big enough and you can print your own money,² you can get away with things little countries can’t.  If other countries tried to do what we are doing, they would soon find that nobody would lend them money and that, if they tried to just print more money, people would refuse to accept their money to pay for things (see, for example, Zimbabwe and, now, Venezuela).

In other words, what we are doing is amazing – and dangerous.  And it will continue to be amazing until it is just dangerous.  The problem is that we won’t know that it is no longer amazing, i.e., that it no longer works, until it all of a sudden doesn’t work.  At which point it will be too late to avoid consequences we don’t want to ever experience.
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¹ Other than maybe Japan, which has a much higher debt-to-GDP ratio than the U.S., but almost all of its debt is owed to its own citizens
² Plus you have rules require that banks, etc., to own your government bonds (for capital and liquidity purposes).