The Infinite Credit Card Glitch (and Why It Can’t Last)

Guest Post by Peter Reagan

What if your credit card had no limit – and you never had to pay the bill? That’s how Washington has treated the national debt for 25 years. But now even former insiders are warning: the free money is coming to an end…

A credit card that can NEVER be declined

Let’s be honest: Most people don’t understand how monetary systems work. It’s not exactly a staple of public education – which makes it easy for bad ideas to take hold.

So let’s start with a thought experiment. Imagine you discovered a glitch in the global financial system, and you received a credit card that’s accepted everywhere. And it has no maximum balance. Even better, though, there’s no requirement to pay off the balance! Never. Infinite credit, and when payments come due, you can put THOSE on the card, too.

Spending as much as you want, on anything you want. Without consequences.

What would you do?

For a while, it feels like magic. Until it doesn’t.

What would most people do?

Some would show restraint. But, let’s be honest, most people wouldn’t.

We already know what most people would do, right? Because they’re already doing it. Millions of Americans carry balances, pay the minimum, and hope for a credit limit increase.

The only budgetary discipline some folks have is their credit card maximum. And if that vanished?

So would the discipline.

Because it’s really easy to spend money when it isn’t yours. As long as the infinite money glitch is working, wouldn’t you keep spending?

The “other people’s money” mentality is especially prevalent in bureaucracies. Governments, for example, aren’t known for their discipline when it comes to spending.

In fact, there’s an entire branch of economics dedicated to this “infinite money glitch.” Its believers call it Modern Monetary Theory (MMT). Their pitch is simple:

Since the U.S. government funds operations by selling debt, every U.S. debt is another person’s asset. So the more the government spends, the wealthier the world becomes. Furthermore, since the U.S. can print its own currency, the government can never technically default on its debts. Just print as much currency as you need to pay off lenders, and meanwhile keep spending big! Because debt creates wealth.

To be fair, they’re not completely wrong. Yeva Nersisyan and L. Randall Wray wrote for The Hill:

“Although our government can choose not to pay its bills – by, for instance, refusing to raise the artificially imposed debt ceiling – it technically can never run out of money to pay bondholders… there is zero probability of default.”

The “science” behind the infinite money glitch

Government debt isn’t really debt, it’s an asset! And when the bill comes due, you can just print up as many $100s as it takes to settle the bill. It only costs about a dime to print a $100 bill, after all.

That sounds just convincing enough to be comforting, doesn’t it? This is what MMT’s figurehead and former NYT columnist Paul Krugman means when he says debt doesn’t matter because “We owe it to ourselves.”

Well, technically true. But that doesn’t answer the real question:

What are those dollars actually worth?

As Paul Mueller writes in The Daily Economy:

“What really matters to investors is not the number of dollars they receive, but the value or purchasing power of those dollars.”

Unbacked currencies like the U.S. dollar, the euro, and the Japanese yen are valued based on what you can buy with them. For example, if you want to buy gold today – say a one-ounce American Eagle – it will cost you:

• $3,360.90
• €2,900.79
• ¥495,447.07

Yes, that’s a BIG difference! Why does it take fewer euros or a massive pile of yen to buy the same ounce of gold?

Because of the differences in purchasing power – mostly driven by government debt and monetary policy.

Japan’s government has run the printing presses much longer and hotter than we have in the U.S.

Turns out, printing your own currency does mean you never bounce a check. You can always pay your lenders back – just not with the same purchasing power.

If debt were truly free, the citizens of Venezuela (400% inflation) and Turkey (50% inflation) would be swimming in wealth. But they’re not. Their governments printed massive sums to cover massive debts. And now their currencies – and their citizens – are paying the price.

Even Obama’s budget director is getting nervous

Peter R. Orszag, former budget director under President Obama, recently made headlines with an article titled, “It’s Time to Worry About the National Debt.”

This is a guy who once dismissed deficit concerns. Now even he’s ringing alarm bells.

His concern is simple: We’re spending more on interest than on Medicare, Medicaid, or national defense. Our top fiscal priority is now… refinancing.

Or in credit card terms? Making the minimum payment. On yesterday’s minimum payment.

Debt piled on top of debt

Today, the Treasury is issuing $17.5 billion in new and refinanced debt every single day. That includes new spending – and interest on old spending.

We’re not just buying new stuff. We’re still paying for the old stuff. Still charging it all to the same national credit card.

And a lot of that old spending? It wasn’t exactly brilliant.

Take the USS Zumwalt, a next-gen Navy destroyer launched in 2003. It was designed with stealth capabilities and a high-tech 155mm gun. Sounds impressive – until you learn the gun costs $800,000 per round. Only three ships were built. The total cost? Around $7.5 billion per ship. And they can’t even reliably stay afloat.

We’re still refinancing that. Over two decades later.

The hidden cost of “free money”

Can’t we just print what we need? Sure. And the Fed has – to the tune of $7 trillion during the last debt spree.

But printing money doesn’t create wealth. It devalues every other dollar in existence. That’s what inflation is: a hidden tax on savings, wages, and everyday expenses.

Food, fuel, housing – everything costs more. Not by accident. Not because of some invisible hand. Because dollars don’t stretch like they used to.

And while we’re stuck with the dollar here at home, foreign investors have a choice.

About $9 trillion of our debt is foreign-owned. If those investors lose confidence in the dollar’s future value, they’ll demand higher yields to compensate. As analyst Wolf Richter puts it: “Yield solves all demand problems.”

That means higher interest rates. A bigger monthly minimum. And no ceiling in sight.

The reality check never bounces

When Washington borrows $17.5 billion a day – and spends like dollars have no meaning – maybe we should believe them.

For centuries, currencies held their value because they were backed by gold. That standard imposed real limits. You could only spend what you had.

Today, 162 of 163 global currencies are backed by… nothing. Only Zimbabwe’s ZiG has any gold backing (and that was an act of desperation, not innovation).

You can fake confidence. You can fudge accounting. You can debate economic theory all day.

But you can’t fake real value.

That’s why central banks – the very institutions that issue currencies! – have been buying gold at record pace for more than three years.

They see what’s coming. And they’re not waiting for the glitch to crash.

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