Deficit hawks often raise the specter of hyperinflation to scare people who disagree with them. And that’s exactly what Hillary Clinton did on Tuesday.
Speaking in Columbus, Clinton criticized Donald Trump for saying last month that the U.S. can never default on its debt obligations “because you print the money.”
“We know what happened to countries that tried that in the past, like Germany in the ‘20s and Zimbabwe in the ‘90s,” Clinton said. “It drove inflation through the roof and crippled their economies.”
But printing money — otherwise known as increasing the money supply – is a routine occurrence for governments that control their own currency. The Federal Reserve has increased its balance sheet by over $3 trillion since the financial crisis, explicitly to support the economy. (The Fed does this by buying stocks and bonds with electronic cash that didn’t exist before.)
In fact, an increasingly influential school of economics, known as Modern Monetary Theory, argues that deficit spending, including through money printing, is critical to promote full employment.
Even Alan Greenspan, former chair of the Federal Reserve, echoed Trump’s comments almost verbatim back in 2011, when the U.S. came close to reaching the debt limit. “The United States can pay any debt it has because we can always print money to do that,” Greenspan told “Meet the Press.”
“If you think about it, it is precisely this power that makes U.S. Treasuries [T-Bonds] so safe in the first place,” said Stephanie Kelton, an economics professor at the University of Missouri-Kansas City and a former chief economist to Bernie Sanders on the Senate Budget Committee. Kelton is one of the leading proponents of Modern Monetary Theory.
But deficit hawks – typically members of the economic elite who favor small government and correspondingly low taxes, and are terrified of the effect inflation would have on their investments and cash reserves — have repeatedly warned that these perfunctory monetary policy actions would lead to Weimar Germany-levels of chaos.
Sen. Rand Paul, R-Ky., for instance, has tried to spook Americans with the thought of “wheelbarrows of cash” leading to the rise of another Hitler (which is not only ridiculous but historically inaccurate; Hitler didn’t rise to power in Germany until the country experienced deflation). Commentators like Peter Schiff have been predicting runaway inflation for seven straight years. House Speaker Paul Ryan warned of hyperinflation in a 2011 speech by taking out pieces of German and Zimbabwean currency from his wallet, which he claimed voters gave to him.
In reality, despite the Fed’s loose monetary policy, inflation remains below target in the United States, and has been so for at least 46 months. Nevertheless, the inflation cult continues to hype discredited fears of certain disaster from printing money.
Elsewhere in the speech, Clinton did reject “painful austerity that hurts working families and undercuts our long-term progress.” But her rhetoric on money printing and hyperinflation is the go-to tactic for those who favor austerity. It’s a transparent way to express budget limits and force cuts, even in economic downturns when more spending is needed.
Blaming prior crises in Germany and Zimbabwe solely on money printing neglects the disastrous circumstances surrounding these countries. The Weimar Republic had unsustainable reparations payments forced upon them by the Allied leaders after World War I. Germany defaulted on these debts, and French and Belgian forces retaliated by occupying the Ruhr, a key industrial area. Germans in the region went on strike, causing a rapid decrease in industrial output, yet the government paid workers to reward their “passive resistance.” These unusual factors generated hyperinflation.
In Zimbabwe, the collapse of food production following land reforms to reverse the inequities of whites owning all the productive agricultural plots created mass unemployment. The government tried to paper over this catastrophe through the printing press, with predictable results.
“What happened in Germany and Zimbabwe had more to do with the collapse of supply than anything else,” said Kelton.
Neither case bears any resemblance to the United States, even in a nightmare scenario of a Trump presidency. But invoking Germany and Zimbabwe isn’t meant to be literally true. It’s a shorthand designed to fearmonger about the dangers of deficits. By adopting such rhetoric, Clinton also adopts this fiscal straitjacket.