The U.S. is a long way away from worthless million-dollar bills. But the U.S. is so far not doing much to get off of the highway that eventually leads ...
That’s 1 million Venezuelan bolívars. Every attendee of today’s “America in Debt” conference at the Library of Congress put on by the Calvin Coolidge Presidential Foundation (led by NRI fellow Amity Shlaes) received one of these bills. Bill Beach of the Coolidge Foundation told me they bought 1,000 of the million-bolívar notes for $488.
The 1-million-bolívar note is no longer issued. Inflation in Venezuela is so insane that the Venezuelan government just removes zeroes from how it measures its currency. After the 1-million-bolívar note came into being, they lopped off five zeroes, so 1 million became ten. Problem solved.
Except it wasn’t, of course. Venezuela is back in the tens of thousands for ordinary prices again. My friend Daniel Di Martino, who previously lived in Venezuela, told me that in his lifetime (he’s 25), the Venezuelan government has removed 14 zeroes. That means, before adjusting for actual purchasing power, one bolívar today is the same as 100 trillion bolívars in the early 2000s.
Venezuela is doing what most governments do when they can’t pay their bills: print more money. It turns out that funding socialism with oil revenue doesn’t work. The ability to print money is a superpower governments have. Like any superpower, it can be abused, and in the hands of politicians, it usually is.
Fortunately in the U.S., we have central-bank independence, so politicians don’t control the money supply. But in the event of a stalemate in Congress over paying the bills, the eyes of the world will turn to the Federal Reserve, and it would be hard — possibly even irresponsible, from the central bank’s perspective — to refuse demands to print more money to pay the bills.
The best way to avoid this outcome is to avoid the situation that leads to it. That means committing to paying our debts no matter what, an American tradition that goes back to Alexander Hamilton, and making reforms now to get spending under control.
Whoever wins the next presidential election will face a major test in the first year of his term. The mother of all fiscal cliffs, about $5 trillion, is coming in 2025. This will be an acute opportunity to either make sensible reforms or push the U.S. closer to a debt crisis.
The Coolidge Foundation conference today features politicians from both parties (Senators Peter Welch and Joe Manchin and Representatives Virginia Foxx and French Hill) who are seriously concerned about the debt. Unfortunately, they don’t comprise anywhere near a majority of politicians, and the presidential campaign is nearly bereft of any conversation about how to actually reduce spending. Both candidates have promised not to reform entitlements, which drive the debt, and both have plans to increase spending and/or reduce revenue if they win.
The U.S. is a long way away from worthless million-dollar bills. But the U.S. is so far not doing much to get off of the highway that eventually leads there. And there are a whole lot of outcomes short of worthless million-dollar bills that are nonetheless undesirable — and avoidable with competent fiscal management.
Update (12:49 p.m.): Venezuela has removed 14 zeroes from how it measures its currency. That is 100 trillion, not 10 billion.