Elon Musk
criticizes "magic computers"

Elon Musk criticizes the government's "magic computers" that "create money out of thin air."

In a recent appearance on a podcast with Senator Ted Cruz (R-Texas), Elon Musk strongly criticized the way the US government handles its accounting, pointing out that, according to him, there are computers in agencies such as the Treasury Department that simply "create money out of thin air." Musk said he finds it "insane" that the U.S. government can have computers capable of generating money without physical backing, although it should be noted that, in reality, the government has the ability to issue currency at almost no cost.

Elon Musk pointed out: "It's crazy that the US government has computers that can just generate money out of thin air." Since the US completely abandoned the gold standard in 1971, the international financial system has relied on mechanisms such as these to sustain the economy.

Although it was unclear what Musk was specifically referring to when he spoke of "magic money computers" in his conversation with Cruz, his comments arose in a broader context of DOGE's (Dogecoin) quest to identify potential waste, fraud, and abuse within the federal government. According to the DOGE agency, they have found up to $115 billion in savings, although an analysis by Fortune suggests that figure is significantly inflated. Musk and Cruz discussed what they consider to be a complete collapse in government accounting.

Musk said, "I think we now have 14 magical computers that simply send money out of thin air."

For his part, Jay Hatfield, CEO of Infrastructure Capital Advisors, suggested that Musk may be criticizing the lack of proper implementation of double-entry accounting in many government agencies, a system that ensures that every financial transaction has opposite effects on at least two different accounts. Although Hatfield doubted this claim, he did not completely rule out the possibility.

If this were a public company, Musk commented, "It would be delisted immediately. It would fail its audit, and the company's directors would be jailed."

Although Cruz's offices in Washington and the Treasury Department did not respond to a request for comment, some experts suggest that Musk was instead expressing his amazement at the US government's ability to issue money and finance its own spending without having to raise taxes directly.

Cruz and former Republican Senator Ron Paul of Kentucky have argued for years that the government effectively "taxes" citizens without representation by issuing currency and causing inflation in the process.

"Any computer that can generate money out of thin air," Musk said, "that's magic money."

David Andolfatto, former senior vice president of the Federal Reserve Bank of St. Louis, commented that Musk's language may be a decoy. In reality, banks do something similar when they lend deposits or when a company, such as Tesla, issues more shares, diluting the value of existing holdings.

According to Andolfatto, what Musk was probably trying to communicate is that the resources allocated to these agencies are not being properly audited or lack adequate oversight. "That may be true or false, I don't know, but the fact that the government can print money out of thin air is not relevant here."

How does the U.S. government print money?

As is well known, the U.S. government has the ability to create money. Ben Bernanke, former chairman of the Federal Reserve, explained this concept in a famous speech in 2002. According to him, the value of the dollar lies in its limited supply.

"The U.S. government has a technology, called the printing press (or, nowadays, its electronic equivalent), that allows it to produce as many dollars as it wants at almost no cost," Bernanke explained. "By increasing the amount of dollars in circulation, or even threatening to do so, the U.S. government can reduce the value of the dollar in terms of goods and services, which is equivalent to raising the prices of those goods and services."

Although the Treasury Department oversees the printing of banknotes and the minting of coins, in practice it is the Federal Reserve that creates money by purchasing assets, traditionally Treasury bonds, from commercial banks, which receive a cash injection as a result. Banks then create credit by lending out some of that money.

Inflation and its impact on purchasing power

While increasing the money supply can be inflationary, Andolfatto acknowledges that inflation constitutes a tax on consumers. In a 2011 blog post, Andolfatto explained that the government generates purchasing power through the creation of new money, known as "seigniorage revenue."

For his part, economist and politician Ron Paul has been critical of this process. In his 2009 book End the Fed, Paul argued that the value of the dollar has declined dramatically since 1913, to the point that a basket of goods and services that cost $1 in that year would now cost $21.

Andolfatto, however, called Paul's claim "absurd," pointing out that most of the money in circulation since 1913 is held by banks and its depreciation has been spread across generations.

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