Hiding Debt Just a Juggling Trick

The Treasury Department—whose mission has ostensibly expanded to include management of government finances, the promotion of economic growth and stability, and the provision of safety, soundness, and security in financial systems—will hit its debt ceiling (yet again) by year’s end.

In the final chapter of The Wealth of Nations, Adam Smith argued that once national debts have accumulated to a certain degree, they are rarely paid. Government officials, he argues, are both unwilling and unable to get serious about debt. They don’t want to lose popularity by raising taxes and they will never cut spending enough. Instead, they employ “juggling tricks” to push the debt problem into the future and hide the full costs.

The most improper “trick” Smith forecasted was currency debasement, “by which a real public bankruptcy [is] disguised under the appearance of a pretended payment.” President Obama and his team of economic advisors would do well to revisit Smith’s timeless discussion of “juggling tricks,” because despite the president’s “exit strategies” rhetoric, further debasement seems to be the inevitable policy path. (more)