The Most Common Misconception About The Economy

James Galbraith was recently interviewed in the University of Texas Alumni magazine and offered an opinion on the “most common misconception about the economy” (via The Alcalde):

“The Alcalde: What’s the most common misconception about the economy?

Galbraith: The fear that we will go bankrupt. The concept of bankruptcy doesn’t apply to a country like us; the U.S. is going to be just fine, long-term. Europe is another story, because the coordinating mechanisms between countries there are dreadful. The U.S. is more resilient than it may look.

My message is the financial position of the U.S. government is far stronger than a great many people think it is. Recently we’ve been seeing this notion that we’re heading toward some unprecedented, apocalyptic territory. You saw that with the panic over the debt-ceiling issue last summer. But the people who were actually buying and selling treasury bonds weren’t flustered in the least. In fact, bond rates went down.”

He doesn’t quite go into the detail that I did in this post, but he’s 100% right.  This idea that the USA (a currency issuer) is similar to a household, business or Greece (all currency users) remains the most destructive myth in America today.

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