It has become nearly impossible to have a conversation about the future of the United States lately without someone throwing out the off hand comment that “the federal government is going broke, you know.”
We can’t have a fully staffed road department in Ravalli County, because “we can’t count on federal funds.” The staff at the county public health clinic is afraid for its continued existence because “the feds are going broke.” The majority of the public comments in the local papers refer to this premise on a daily basis. Republican representation in the county and at the state and federal level will start many of their conversations, publicly and privately, with that smug assurance as the rationale behind their decisions and their votes.
Many of the citizens who keep this fallacy alive are also the same people who have taken it upon themselves to criticize their neighbors for not having as intimate a knowledge of the US Constitution as they do. They have embraced the mantra and the talking points of the self righteously conservatives who seem to be relishing the idea of a collapse, perhaps because they think that since they are so well armed they will be the only survivors if the Unites States does, in fact, swirl down the tubes.
I would like to take a line from our beloved Constitution, the phrase that explains why the Federal government will never go bankrupt. That line is “full faith and credit.”
Definition of “Full Faith And Credit” – A phrase used to describe the unconditional guarantee or commitment by one entity to back the interest and principal of another entity’s debt http://www.investopedia.com/terms/f/full-faith-credit.asp.
Is it even possible for the federal government to go bankrupt? The short answer is no. And the reason for that is that we are living in a country whose currency is based on a common agreement that it has value. This is called a fiat currency.
Definition of “Fiat Money” – Currency that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves. http://www.investopedia.com/terms/f/fiatmoney.asp
Alan Greenspan said it best: ”Government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit.”
Ironically, those “Conservative” federal congressmen who are spreading the lie that the country is going broke are also the ones who refuse to honor the full faith and credit of the responsibilities of the Federal government by threatening to shut it down during debt ceiling negotiations. They have in the past, and are willing to again, by their acts, damage the credit rating of the country and weaken the position of the United States. By bringing into doubt the strength of our “full faith and credit” they are perpetrating a self-fulfilling prophesy.
I know that it is counter-intuitive to understand that our currency is not based on tangible value. We want to believe things have intrinsic value, whereas value in a marketplace is determined by supply and demand, not anything intrinsic. It’s a frightening proposition to think that the US dollar is backed by “nothing.” But any currency system is backed by “nothing,” or rather by the same thing, which is a common agreement to assign value.
Ultimately, full faith in the common agreement is what will save our financial bacon.