What Was Barron's Thinking?

 | Feb 20, 2013 | 9:00 AM EST  | Comments
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Financial journalism has hit a new low. I thought things were bad enough, but Barron's has just taken financial commentary to subterranean levels. The magazine's cover story this week, "Follow Me, We Can Be Like Greece," is such a massive piece of distortion that it's mind-numbing that Barron's calls itself "America's premier investing magazine." If this is premier, I shudder to think what your run-of-the-mill, pedestrian magazines are like.

It's astonishing that Barron's doesn't understand the distinction between a currency-issuing nation, such as the U.S., and a nation that no longer has its own currency, such as Greece. The distinction is huge, and anyone in finance, particularly a publication that claims to hold itself up to such a high standard, should know that. And if it does know that but still publishes this distortion, then it is displaying a very cynical and blatant contempt for the very people it proclaims to want to "educate."

Let's just understand something: The U.S. cannot become like Greece. Greece gave up its currency when it adopted the euro, and like any other country that spends or borrows in somebody else's money, its debts do matter, it can go broke, it is at the mercy of lenders if it wants to stay solvent.

The U.S., Japan, Britain, Switzerland and any other country that issues and spends in its own currency does not have this problem. That is why, when Standard & Poor's issued its idiotic downgrade of the U.S.'s credit rating back in 2011, rates did not even budge. Sorry, my bad ... rates went down. To new, all-time lows. Yawn.

Greece doesn't have that luxury. Its debt problems and the ratings downgrades led to soaring interest rates. Why? Because Greece needed euros to meet its obligations, and it doesn't print euros, only the European Central Bank does. So it had to beg the ECB for help or beg private entities that had euros to lend. Same with Spain, Portugal, France, Italy, even Germany. None of them are currency issuers anymore.

It's amazing how many otherwise smart people on Wall Street don't understand this. Several years ago, when I had my radio show, I had Bill Gross of Pimco on. I asked him about his comments on the U.S. debt and he went rattling off about how it's a big problem (and that was when the debt was only, like, $8 trillion). He compared the U.S. with some profligate household. When I asked him why he wasn't acknowledging the distinction between the U.S., which is a sovereign, currency-issuing nation, and a household, which doesn't issue currency, he was literally dumbfounded. He basically had no answer. He said it didn't matter. It didn't matter?

Well, Bill, and Barron's, and whoever else is interested, it does matter. It matters a lot. The U.S. cannot become the next Greece, and we can't become the next Spain or the next Zimbabwe or Weimar. The U.S. can always meet its obligations, because the obligations are denominated in its own currency.

However, we can become the next Japan, relying solely on ineffective monetary policy to solve issues that only fiscal policy can address. We can see our debt go higher and higher and higher over the coming years, with interest rates remaining near zero and economic activity mired in perpetual slow motion. Just like Japan.

We have economic problems, to be sure, but our debt is not part of the problem. Our problems stem from meekly accepting a subpar economy and high unemployment because we are not courageous or bold enough or enlightened enough to enact policies that boost aggregate demand, incomes, employment and output. We cling to superstition, falsity and myth. In so doing, we sentence ourselves to a standard of living that is far below what it could be and poverty for millions where there shouldn't be.

Barron's should know better. A cover story like the one makes it part of the problem. It perpetuates a dogma that is monumentally ignorant and destructive. It's a pathetic example of what our understanding of finance and economics has become. The whole system has been perverted by a washed-up, fake, misinformed doctrine, and millions upon millions suffer because of it, for no reason at all.

Barron's, you should be ashamed.

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