With so many economic, political, and social problems facing us today, there is little point in focusing attention on something that is not one. The false fear of which I speak is the chance of US debt default. There is no need to speculate on what that likelihood is, I can give you the exact number:
there is 0% chance that the US will be forced to default on the debt.
We could choose to do so, just as a person trapped in a warehouse full of food could choose to starve, but we could never be forced to. This is not a theory or conjecture, it is cold, hard fact. The reason the US could never be forced to default is that every single bit of the debt is owed in the currency that we and only we can issue: dollars. Unlike Greece, we don’t have to try to earn foreign exchange via exports or beg for better terms. There is simply no level of debt we could not repay with a keystroke.Forbes
It is IMPOSSIBLE for the US to default!!!
John T. Harvey | Professor of Economics, Texas Christian University
I think people are worried that China will stop taking our dollars, or Saudi Arabia will stop taking our dollars. So while you are correct that we can repay any amount of debt with a keystroke, you don't get at the heart of the fear of our politicians and public. That the dollars we use will not be convertible to real chinese goods or saudi oil. We will have a real problem at that point. So the debt debate is about appeasing the people that supply us with real resources.
ReplyDeleteAnon, If the Chinese or Saudis would use their own currency instead of dollars, we wouldn't need to issue the bonds in the first place! Their dollar hoarding and mercantilism drain demand from the US economy by directly causing unemployment and lower tax revenues. The US Government could, but chooses not to spend enough to offset the couple trillion in demand leakages from foreign sector saving in our currency.
ReplyDeleteI think people are worried that China will stop taking our dollars, or Saudi Arabia will stop taking our dollars. So while you are correct that we can repay any amount of debt with a keystroke, you don't get at the heart of the fear of our politicians and public. That the dollars we use will not be convertible to real chinese goods or saudi oil. We will have a real problem at that point. So the debt debate is about appeasing the people that supply us with real resources.
ReplyDeleteMMT says exactly that. The trade deficit can go on as long as there are people willing to save in the currency. when that might end for any nation, then they will either conduct balanced trade or invest in the US, or else cease exporting to the US.
As long as the Saudi regime is dependent on US military power to stay in power, the Saudis will happily accept USD for $ and either purchase tsys or weapons.
The Chinese will continue to save in USD until they decided to cease being an export-driven economy, which doesn't look like anytime soon with the domestic consumption portion of China's GDP being in the area of 35% and holding.
As long as we still produce surplus output for export isn't the worst case that we have to "live within our means" by paying for our imports with exports? Balanced trade would be an adjustment but doesn't seem like the end of the world.
ReplyDeleteAs long as we still produce surplus output for export isn't the worst case that we have to "live within our means" by paying for our imports with exports? Balanced trade would be an adjustment but doesn't seem like the end of the world.
ReplyDeleteOf course. But a big reason that US runs such a large trade deficit is foreign demand for USD as the primary reserve currency. The reserve currency country needs to supply it to facilitate global commerce and saving desires.
I have a question, sorry if this is slightly off topic, but it shouldn't be too far off, sectoral balances are never far away in MMT...
ReplyDeleteIn the Joe Weisenthal's article in business insider on clinton's surplus http://www.businessinsider.com/how-bill-clintons-balanced-budget-destroyed-the-economy-2012-9
I'm confused on some of the charts he shows and how they could be stock-flow consistent with sectoral balances. Two points specifically:
1. It shows the personal savings rate, which never falls below 2%. How could this be? For clinton to have a surplus, private sector should be in deficit. Does personal savings rate try to include net worth, eg I spent more than my income but the supposed increase in house prices boosted my net worth greater than my deficit subtracted from it (of course that wasn't real net worth)???
2. There's also a chart showing change in govt debt, and the change is positive every year. How can clinton have a surplus with govt debt always increasing?