When someone says something is “not possible,” it raises my antenna.
Lately, I’ve been hearing folks say it’s impossible for America to default. That makes me nervous-because history tells a different story. Just ask Rome, France, or the U.K.-great nations don’t stay great forever, especially when they start believing they’re immune to consequences.
In a recent podcast episode,Ep 138: Will The U.S. Go Broke, I sat down with Dr. John T. Harvey, an economist and leading voice on Modern Monetary Theory (MMT), to talk about U.S. debt, inflation, and whether we’re really as invincible as some claim. Spoiler alert: we’re not.
Here are the big takeaways from that conversation and why they matter right now.
What is Modern Monetary Theory (MMT), Really?
MMT flips the traditional view of government finance on its head. According to Dr. Harvey:
Countries like the U.S. that issue their own currency aren’t like households or businesses-they can’t “run out of money” the way we do.
The government literally creates money when it credits bank accounts (like it did with COVID-19 stimulus payments).
The real constraint isn’t the money-it’s whether we have the people, tools, and materials to produce what’s needed.
Key takeaway: Budget limits are less important than the productive capacity of the economy.
Can the U.S. Default?
Technically, no. The U.S. can always pay debts that are owed in dollars, because we issue the dollar. That’s a big deal.
Countries like Greece or Mexico can default because they borrow in foreign currencies.
The U.S. borrows in its own currency, so it can meet its obligations by issuing more dollars.
But that doesn’t mean we’re off the hook.
The real risk isn’t default-it’s inflation, and how that inflation impacts the economy when too much money is chasing too few goods.
What Are the Real Constraints?
We need to stop acting like money is scarce. It’s not.
The real limitation is whether we have enough skilled workers, raw materials, and infrastructure to meet our goals. If those are available, then spending makes sense. If they’re not, we risk driving up prices unnecessarily.
Unused factories, unemployed people, and idle land? That’s not saving money. That’s lost opportunity.
Rethinking Inflation and Interest Rates
The traditional thinking goes like this: if inflation goes up, raise interest rates. But Dr. Harvey argues that this is overly simplistic.
Some inflation is demand-driven. That can be healthy.
Some inflation is due to supply shocks, like war or global pandemics. Raising rates won’t fix that.
Sometimes, inflation is the result of price gouging or monopolies, not an overheated economy.
Instead of automatically hiking rates, we should diagnose the real cause of inflation and respond accordingly-whether that’s targeted regulation, competition policy, or supply chain fixes.
Government Spending and Economic Growth
Here’s what doesn’t get said enough: government spending isn’t just a cost-it’s an investment. And those investments often turn into income for businesses and households.
Cutting spending doesn’t magically improve the economy. In many cases, it shrinks it.
Whether it’s defense contracts or public works, that money cycles through the private sector. And even the loudest critics of government spending are often the biggest beneficiaries.
Politics, Not Economics, Is the Problem
If you’re wondering why the U.S. doesn’t have universal healthcare or modernized infrastructure, the answer isn’t debt. It’s politics.
We’ve been conditioned to believe that we can’t afford certain things, but the truth is: we choose not to. Dr. Harvey calls it “economic religion”-a set of beliefs that go unquestioned even when the facts say otherwise.
Power and politics -not money- determine what gets funded.
The Global Context: Reserve Currency and Trade
Yes, the U.S. dollar is the world’s reserve currency. That gives us some unique advantages.
Countries like China and Japan hold U.S. debt not because we need their money, but because they sell us goods and have trade surpluses.
If they stop buying our debt, it’s not the end of the world-it just shifts global portfolios around.
Even if the dollar someday loses its status as the world’s dominant currency, it doesn’t mean collapse. It means adjustment.
What About Crypto?
Dr. Harvey isn’t against innovation, but he’s clear: cryptocurrencies are not a replacement for sovereign money.
They’re not backed by tax authority.
They’re highly volatile.
They’re speculative assets, not stable currencies.
That doesn’t mean they’re worthless-but it does mean we shouldn’t pretend they’re a substitute for sound monetary policy.
Wealth, Competition, and Economic Health
The economy thrives on competition, but when wealth concentrates too much at the top, that competition gets stifled.
Small businesses get crowded out.
Innovation slows.
Opportunity dries up.
Addressing wealth inequality isn’t just a moral argument-it’s an economic necessity.
What Can You Do?
If you’re a policymaker:
Focus on the real limits: labor, materials, capacity-not just dollar amounts.
Diagnose the real cause of inflation before hitting the brakes.
Use spending to solve real problems-not just to balance arbitrary ledgers.
Enforce competition and fair markets to keep the economy healthy.
If you’re a citizen:
Don’t fall for the “government = household” analogy. It doesn’t hold.
Push for investment in education, infrastructure, and healthcare.
Ask better questions about how money works-and who benefits when certain myths are repeated.
Final Thought
Dr. Harvey’s take on modern monetary theory isn’t just academic, it’s a wake-up call. If we keep letting fear of numbers on a spreadsheet dictate national priorities, we’ll miss the real point: how are we using our resources to make life better for people?
Although I may not agree with some of the analysis as debts truly don’t matter, I do believe Dr Harvey has a point that we need to use our debt more wisely. Inflation is the fly in the ointment and increased money prinitng will have an inflationary aspect to it: NO QUESTION ABOUT IT!
Further Reading and Resources: