Loansharks

So tomorrow, the U.S. Department of the Treasury is coming out with a new thing that you can buy. Instead of just printing all the money themselves, they’ve decided that they’ll sell smaller “mini-mints” to private individuals. This sounds like a great deal, right? I mean, it’s literally your own money printer.

Here’s the fine print: the up-front cost is a million bucks. And the machine can only print denominations of US currency that are currently in circulation, which means the largest single bill you can print is a Franklin – $100. Oh, and the machine can only print one bill per day.

It’s a great deal! …isn’t it?

Well, assuming you had a million dollars liquid to buy one, you’ll have made your money back in just under twenty-seven and a half years. After that, though, you’re totally just making free money! That is, if you completely ignore the opportunity cost of tying a million bucks up in this silly machine for almost three decades.

Okay, but let’s say you don’t have a million bucks, but you still want this machine. No problem, says the treasury! You can finance it! And heck, this is the US Treasury, not some private lender, so they’ll keep the interest rates low and they won’t do any sort of background check – anyone who wants a money printer can borrow the money to buy one.

But “low” interest doesn’t mean “no” interest, so there’s still a little overhead to pay now. And the machine can still only print a max of $100 per day. So borrowing to get one of these machines is an even worse deal than buying one outright, it would seem.

And of course, that even assumes that everyone uses the machine to its maximum capacity! But it turns out, that might be difficult. The machines still need ink and paper, and there isn’t always enough for every machine, so sometimes the machines are idle. Sometimes people choose to print $50 bills or even $1 bills with them, just because they like those better. Sometimes people just don’t print bills! Even though the machine is relatively simple to use, it isn’t automatic – each day you want to print a bill you still have to type in what you want and hit “print,” and some people just don’t do it. Some people pay for a machine and never even bother to go pick it up and plug it in, believe it or not. Some machines are defective or outright broken when they’re bought – but there is no customer service and no refunds, so those people are just out of luck.

So here’s what happens. A whole lot of people want these machines, because the fine print is lost on them and all they hear is “money printer.” Most people that buy them borrow for them. And so most people who have them are not only in a ton of debt, but they’re in debt that they probably aren’t going to be able to pay off.

It’s fine to be compassionate to those people! You should always be compassionate. But if someone were to suggest that the collective debt of these money-printer-owners is a “crisis,” then the very first thing that should be discussed is how irresponsible and predatory it was for the US Treasury to sell these machines in the first place.

Because here’s the thing: if there is enough debt over a single asset to be called a “crisis,” then by definition that asset is a terrible investment and it should stop being bought. If apples sell for ten cents apiece but apple trees cost two hundred thousand dollars, then apple trees would be a terrible investment. You could still buy an apple tree because you liked it, but then we’re talking about consumption goods and not investments, and you can’t make the same arguments about debt.

Let me just beat this (by now, hopefully obvious) analogy to death a tiny bit more:

When you propose that the US Treasury stop selling money printers, there will absolutely be someone who claims “What a monster you are! People need money! If we stop selling money printers, how will they get money?!” (Very likely this person works for the US Treasury’s money-printer division and is doing very well.) The argument will catch on among certain people. They’re pulling a bait-and-switch, swapping out one vehicle for accomplishing something for the thing itself.

People generally need money, sure. That’s not the same as saying that they need to buy money-printers for a million (borrowed) bucks. Some things stick around for a long time, but that doesn’t mean they’re good.