James Kenneth Galbraith on Economic Mythology

In an interview with the University of Texas alumni magazine, The Alcalde, economist James Kenneth Galbraith identifies what he thinks is the biggest myth about the American economy.

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.

As I've been saying for some time now... Nations with a sovereign currency cannot go bankrupt.

The gold bugs, bond vigilantes and deficit hawks can suck it.