Abstract
An increasingly visible school of heterodox macroeconomics, Modern Monetary Theory (MMT), makes the case for functional finance – the view that governments should set their fiscal position at whatever level is consistent with price stability and full employment, regardless of current debt or deficits. Functional finance is widely understood, by both supporters and opponents, as a departure from orthodox macroeconomics. We argue that this perception is mistaken: While MMT’s policy proposals are unorthodox, the analysis underlying them is entirely orthodox. A central bank able to control domestic interest rates is a sufficient condition to allow a government to freely pursue countercyclical fiscal policy with no danger of a runaway increase in the debt ratio. The difference between MMT and orthodox policy can be thought of as a different assignment of the two instruments of fiscal position and interest rate to the two targets of price stability and debt stability. As such, the debate between them hinges not on any fundamental difference of analysis, but rather on different practical judgements – in particular what kinds of errors are most likely from policymakers.
Arjun Jayadev and J. W. Mason
August 22, 2018
John Jay College - CUNY
24 comments:
Read the first half the paper. The authors go on about how much government debt MMTers and conventional economists think is acceptable, but they seem unaware that two leading MMTers, Warren Mosler and Bill Mitchell (along with Milton Friedman) have advocated no government debt at all! Not sure the authors have done their home work.
Sources:
Re Friedman see his para starting "Under the proposal..." here:
https://miltonfriedman.hoover.org/friedman_images/Collections/2016c21/AEA-AER_06_01_1948.pdf
For Mosler, see his last two paras here:
http://www.huffingtonpost.com/warren-mosler/proposals-for-the-banking_b_432105.html
For Mitchell, see: http://bilbo.economicoutlook.net/blog/?p=31715
“MMT says that governments should set their fiscal position at whatever level is consistent with price stability and full employment, regardless of current debt or deficits.”
No.
MMT says this only applies if the government’s so-called debts are in the government’s own currency, and the currency is free-floating.
By contrast, governments are fiscally constrained if…
[1] They are not monetarily sovereign (i.e. they do not produce its own currency)
and / or
[2] They have a trade deficit
and / or
[3] Their currency is not negotiable outside their borders.
The US, UK, Canada, and Australia all have gigantic trade deficits. However their governments create their own money out of thin air, and their money is widely accepted.
“Functional finance is widely understood, by both supporters and opponents, as a departure from orthodox macroeconomics. We argue that this perception is mistaken: While MMT’s policy proposals are unorthodox, the analysis underlying them is entirely orthodox.”
I disagree. Most economics professors are paid to espouse neoliberal lies (e.g. they falsely claim that the U.S. government has a “debt crisis”). Such lies are “orthodox” economics for neoliberals. MMT does not agree with these “orthodox” lies.
@ Ralph Musgrave:
“No public purpose is served by the issuance of Treasury securities with a non-convertible currency and floating exchange rate policy.” ~ Warren Mosler
There are several public purposes for the issuance of T-securities. For example, the USA’s massive trade deficit causes hundreds of billions of U.S. dollars to accumulate in the hands of foreigners. Foreigners would use that money to buy up the USA if they could, but they are constrained by the U.S. government’s Committee on Foreign Investment in the United States.
So…what can foreigners do with all those hundreds of billions of U.S. dollars? They can buy T-securities and gain interest. Thus, T-securities give foreigners a reason to keep sending goods and services to the USA in exchange for U.S. dollars.
And this is only one example. Mosler is in error.
Bill Mitchell is also in error…
“Governments should not issue any public debt as the benefits of doing so are small relative to the large opportunity costs.” ~ Bill Mitchell
Wrong. If a country has a trade deficit, and the country’s own currency is not accepted outside the country’s borders, then the central bank will need foreign currency in order for the country to buy imports. (Foreigners want to be paid in the currency of foreigners’ choice.)
Since there is a trade deficit, the country will have to borrow foreign currency from banks, or from funding agents like the IMF, or via the sale of sovereign bonds. The latter is an option if the banks and the IMF charge too much interest, and / or demand too much neoliberalism as a condition of their loans.
Regarding the USA, the “public debt” simply consists of the total money currently on deposit in Fed savings accounts. When T-securities mature, this money must be given back to the depositor. Hence it is “on loan.” If you give me a hundred dollar for a 3% rate of return, then I owe you your $100 plus 3%. Until I pay, your money just sits there.
Mitchell’s error is to assume that all nations are like the US, UK, Canada, and Australia. Obviously they are not.
When discussing MMT there are several questions we must answer at the start.
[1] Is the nation's government monetarily sovereign? (Does it produce its own currency out of thin air?)
[2] If the nation’s government is monetarily sovereign, is its currency accepted outside the nation’s borders?
[3] Does the nation have a trade surplus, trade balance, or trade deficit?
The answer to these three questions will determine the how MMT is applied, and will also let us see through neoliberal lies.
@ Konrad, "[2] If the nation’s government is monetarily sovereign, is its currency accepted outside the nation’s borders?"
You should define "accepted" and "outside" more precisely.
Maybe rethink and reconstruct [2]...
"The economic analysis behind MMT’s fiscal-policy argument is essentially the same as that used by orthodox policymakers and in undergraduate textbooks."
Of course it is not. Undergraduate textbooks teach that the government is like a household, that it must first earn money before it can spend, and that it must hold to an equilibrated budget or chaos will ensue.
"Both orthodox policy macroeconomics and functional finance start from the same key assumptions: 1. In the short run, output is determined by the total desired spending of units in the economy (aggregate demand)"
I'm not sure that any orthodox policy maker would agree with that.
"2. In the short run, unemployment is a decreasing function of the level of output, and inflation is an increasing function of the level of output.
"
I'm sure that functional finance does not start from that assumption.
"This assumption can be represented as a Phillips curve, the same general form of which is used by MMT as in conventional textbook presentations."
MMT believes that the Phillips curve is some kind of fraud.
"4. Economy-wide spending (aggregate demand) depends on, among other things, the interest rate set by the central bank and the budget position of the central government."
MMT does not usually believe that aggregate demand is influenced somehow by the central bank interest rate.
At that point I realized that this text is just a waste of time and I quit reading it.
If you are reading this, please do a favor to yourself and do not waste your time reading the paper.
.
@ SDB:
"You should define 'accepted' and 'outside' more precisely."
Accepted: A person from Botswana, for example, cannot spend Botswana pula in Malaysia, or anywhere else outside Botswana. By contrast, an American can spend a U.S. dollar almost anywhere, or find a currency exchange that will accept his dollars in trade for local currency.
Outside: As in outside a national border. If you don't understand what this means, then I cannot help you.
Thank you for commenting.
@ Unknown:
"Undergraduate textbooks teach that the government is like a household, that it must first earn money before it can spend, and that it must hold to an equilibrated budget or chaos will ensue."
Eurozone governments actually are that way, since they have surrendered their monetary sovereignty to bankers. If they have a trade deficits (e.g. Greece) then they must borrow all their euros. This is why the Greek disaster will continue to worsen until Greece drops the euro.
Undergraduate textbooks do not explain this. Nor do graduate textbooks. Their authors want students to support neoliberal lies.
"Undergraduate textbooks teach that the government is like a household, that it must first earn money before it can spend, and that it must hold to an equilibrated budget or chaos will ensue."
The great thing about MMT is that it allows the government to endlessly steal purchasing power from the unsuspecting public without any consensus at all and without due process of law. It's such a marvelous way to fund the Deep State, the endless wars and the overblown "intelligence" agencies. We wouldn't want the Deep State to be revenue constrained, would we? Or chaos will ensue.
Bob Roddis claims that MMT "allows government to endlessly steal purchasing power from the unsuspecting public...". Bob is wrong as ususal.
Government does steal purchasing power via inflation, but governments make no secret of the fact that they aim for an inflation rate of about 2%. So there's nothing "unsuspecting" there. I.e. it is generally agreed by economists, MMT supporters or not, that 2% is about the optimum level of inflation.
Konrad,
Re Mosler, your argument seems to be that (contrary to Mosler’s suggestions) it is beneficial for the US to pile up debt, on which it pays interest, so as to induce foreigners to keep sending stuff to the US. My answer to that is that clearly there’s an advantage in piling up debt: you get more stuff sooner, but the drawback is the increased ultimate cost of the stuff (i.e. you have to pay interest).
Now I can see how an individual household or firm can judge the costs and benefits there. E.g. a firm when buying investment goods can compare the profit made from the investment with the interest it pays on money used to buy the goods. But I don’t see how the US government can gauge the costs of benefits of buying the vast assortment of goods that the US imports (both consumer goods and investment goods) on credit. Plus the US government (like other governments) is far too clueless to actually try to make that calculation: i.e. US and other countries pile up debt for much more haphazard reasons. Ergo I think Mosler is basically right.
Re Bill Mitchell you claim his error “is to assume that all nations are like the US, UK, Canada, and Australia. Obviously they are not”. Actually he makes no such assumption: he simply deals with the simple case of a closed economy: i.e. one that has no dealings with the outside world. And I have no objection to that simplifying assumption, because what goes for a closed economy nearly always goes for real world economies, regardless of whether they have their own currencies or not.
But if you can explain which of Mitchell’s points collapse in the case of a country without its own currency, I’m all ears.
Since there is a trade deficit, the country will have to borrow foreign currency from banks, or from funding agents like the IMF, or via the sale of sovereign bonds. Konrad
One should, of course, never borrow in a foreign currency.
As for the sale of the inherently risk-free sovereign debt of a monetary sovereign, that constitutes welfare proportional to account balance in the case of positive (actually non-negative if one considers administrative costs, i.e. a ZERO percent yield is still welfare though not normally proportional to account balance) yields and should also be avoided. Btw, that same argument applies to fiat account balances at the Central Bank (aka "reserves" in the case of banks) EXCEPT for a negative-interest-free exemption for individual citizens up to a reasonable limit on account size and transactions per month since individual citizens have an inherent right (supported by the long established precedent of physical fiat, aka "cash") to use their Nation's fiat FOR FREE up to reasonable limits on account size, etc.
Besides, there is another option to finance a trade deficit: direct loans from foreigners of the domestic fiat they've accumulated to the domestic private sector but with no recourse to the foreigners in case of default lest they end up owning the country they are lending to.
Another point, a major reason foreigners are willing to finance the trade deficit of a monetary sovereign in the first place is their ability to purchase, as mentioned above, welfare proportional to account balance. Eliminate that welfare for foreigners (and the rich), as we should anyway, and the trade deficit should shrink.
Of course eliminating the ability of foreigners to buy welfare proportional to account balance should, in itself, be expected to weaken, i.e. reduce the foreign demand for, the currency, i.e. fiat, of a monetary sovereign which is why the DOMESTIC demand for fiat should be maximized by allowing all citizens to use their Nation's fiat in convenient, inherently risk-free account form at the Central Bank itself and by eliminating all other privileges for the banks.
@ Ralph Musgrave:
“Re Mosler, your argument seems to be that (contrary to Mosler’s suggestions) it is beneficial for the US to pile up debt, on which it pays interest, so as to induce foreigners to keep sending stuff to the US. My answer to that is that clearly there’s an advantage in piling up debt: you get more stuff sooner, but the drawback is the increased ultimate cost of the stuff (i.e. you have to pay interest).”
Public debt (also called the “national debt”) is trivial for the US government, since the debt is denominated in dollars, which the US government creates out of thin air. Moreover the public debt is money deposited in Fed savings accounts. It has no effect on the prices of goods and services.
Meanwhile private debt is catastrophic (e.g. property mortgages, student loans, car loans, etc). It will destroy the USA.
Indeed the reason why pundits and politicians harp on the trivial public debt is to distract the masses from the non-trivial private debt.
“Re. Bill Mitchell you claim his error is to assume that all nations are like the US, UK, Canada, and Australia. Obviously they are not.” Actually he makes no such assumption: he simply deals with the simple case of a closed economy: i.e. one that has no dealings with the outside world.”
You are correct. I was in error. Mitchell’s wording was “There is no particular necessity to match public deficits with debt-issuance for a currency-issuing government.”
“But if you can explain which of Mitchell’s points collapse in the case of a country without its own currency, I’m all ears.”
Greece, for example, does not have its own currency. And since Greece has a trade deficit, Greece has no money coming in from abroad. Therefore Greece must borrow all its euros from banks, or else borrow euros by selling sovereign bonds.
@ Andrew Anderson:
“One should, of course, never borrow in a foreign currency.”
If a nation has a trade deficit, and if its currency cannot be spent outside the nation’s borders, then the central government has no choice but to borrow in foreign currency, since foreigners who sell to the nation want to be paid in the currency of their choice.
For example, Argentina has a large and growing trade deficit. Argentina buys more goods from abroad than Argentina sells to foreigners abroad. Foreigners who sell to Argentina want to be paid in dollars, or euros, or whatever, but not in Argentine pesos. In order for Argentina to get dollars or euros or whatever, Argentina’s government must borrow them.
If Argentina had a trade surplus, then the surplus would cause foreign currency to flow in from abroad, with no borrowing.
Point of clarification: The MMT position is that there is no financial necessity for a currency sovereign to issue public debt as a matter of fiscal policy.
However, it is not policy that MMT universally recommends either.
Some MMT economists recommend either not issuing public debt or curtailing it to short-term cash equivalents.
This doesn't imply that all currency sovereigns face no balance of payments constraint either. Financially, there is both the constraint of inflation domestically and bop externally.
This would hold especially for economies that are dependent on vital goods priced in a currency they don't issue, like oil being priced in dollars.
Financially, there is both the constraint of inflation domestically Tom Hickey
Government privileges for the banks are a hold-over from the Gold Standard when fiat was too expensive for all citizens to use but only the banks. Now, with the Gold Standard gone and inexpensive fiat the rule, those privileges are obsolete and serve to decrease the amount of fiat the monetary sovereign may spend for the common welfare or give to citizens (e.g. a Citizen's Dividend) for a given amount of price inflation risk.
and bop externally. Tom Hickey
Thereby increasing the need for foreigners to be bribed with positive yields on the inherently risk-free debt of the monetary sovereign lest they compete with domestic consumers for goods and services and thereby increase domestic price inflation risk.
Konrad
Exports do not pay for imports as you imagine so that trade surplus countries are not having public debts.
Germany is a huge trade surplus country yet it has one of the highest debts in EU. Germany has 81% debt to GDP.
Norway has 147% of GDP in foreign reserves yet it has 34% debt to GDP. Why is that 34% debt not erased by 147% reserves?
Because accounts of debts and savings are in different state accounts with sepparate purposes, separate management and time limits. Just as your personal accounts of credits and savings are separate and time differentiated in contracts. It is easy for you as a single person to intermingle funds between them but not as easy for a state accounts to mingle funds with all different purposes and management.
Another confusion is your description of money accepted "inside and outside borders".
No American can buy anything for dollars in my country. " By contrast, an American can spend a U.S. dollar almost anywhere, or find a currency exchange that will accept his dollars in trade for local currency." that statement is completely untrue, full blown mythology.
NO cash register is set up for two currencies, only for domestic one. NONE.
But you can easilly find people anywhere willing to exchange dollars for domestic currency, even a person at the cash register will exchange it for you, at a good discount of course. Even though it is illegal to do such exchange, it happens everywhere.
On the other hand i can find banks anywhere to exchange my country currency for a domestic one. Or just use my card at any transaction in any country, where the exchange will happen behind the Central Banks agreements between countries.
Your description is very very outdated one.
But. you point to an important power relations in international trade. "Former" empires do not accept "former" colonist currencies in trade. That is where the trouble comes from. If Botswanna's private persons want to buy foreign cars, the Botswana's Central bank has to come up with Dollars to enable the import. It usually is by borrowing from exporting country banks in their currency. That is where the debt comes from. From people buying foreign products, not from states buying, but from private sector. A Central bank has to borrow to facilitate private buying from foreign production.
ANother big mistake of yours is the thinking that there is a country that does not create money out of thin air. All countries create money out of thin air.
Greece creates Euros out of thin air. Why do you say that it does not? Greek banks do it all the time, not the state itself, and then after the fact the ECB aprooves it or not as in some cases.
.
@ Jure Jordan:
PART 1 of 2
“Exports do not pay for imports as you imagine so that trade surplus countries are not having public debts.”
You are fallaciously equating foreign debt with government debt in a government’s own currency.
If a nation has a trade surplus, then the nation is not forced to borrow foreign currency in order to buy imports. Therefore the nation’s government will have little or no foreign debt. Nonetheless the nation’s government may choose (for whatever reason) to issue treasury securities in the government’s own currency. Or the government may choose (for whatever reason) to borrow in a foreign currency. But a government with a trade surplus is not forced to do this.
Germany, of course, does not have its own currency, since Germany uses the euro. However the German government is not forced to borrow euros, or borrow in any other currency, since Germany has a huge trade surplus.
“Germany is a huge trade surplus country, yet it has one of the highest debts in EU. Germany has 81% debt to GDP. Norway has 147% of GDP in foreign reserves yet it has 34% debt to GDP. Why is that 34% debt not erased by 147% reserves?"
Because Germany has such a large trade surplus, Germany has a vast reserve of euros and other currencies. Therefore Germany can afford to borrow in euros or in other currencies if Germany chooses to, for whatever reason. However, as I said, the German government is not forced to borrow in euros or in other currencies. By contrast, Greece is forced to borrow euros, since Greece has a trade deficit, and the Greek government is not monetarily sovereign. The Greek government cannot create euros out of thin air.
Norway has a trade surplus like Germany. However, unlike Germany, Norway’s government is monetarily sovereign, meaning the government can create infinite krones out of thin air. Therefore Norway’s debt-to-GDP ratio in Norwegian krones is irrelevant.
Please learn the crucial difference between national governments that have monetary sovereignty (like Norway) and governments that do not (like Germany).
“Because accounts of debts and savings are in different state accounts with separate purposes, separate management and time limits. Just as your personal accounts of credits and savings are separate and time differentiated in contracts. It is easy for you as a single person to intermingle funds between them but not as easy for a state accounts to mingle funds with all different purposes and management.”
This is gibberish. Please rephrase.
“Another confusion is your description of money accepted ‘inside and outside borders.’
No American can buy anything for dollars in my country. ‘By contrast, an American can spend a U.S. dollar almost anywhere, or find a currency exchange that will accept his dollars in trade for local currency.’ That statement is completely untrue, full blown mythology.”
WRONG. As an American, I can go to any nation in the world and find a bank or a currency exchange house that will trade local (domestic) currency for my U.S. dollars. If you doubt this, then you obviously have never traveled outside your country. I myself have personally traded US dollars for local currency in Mexico, Japan, Russia, Belarus, India, the Netherlands, Singapore, and China.
“NO cash register is set up for two currencies, only for domestic one. NONE.”
I wasn't talking about cash registers. I said that I can always find a bank or currency exchange place that will trade my US dollars for local currency. You even repeated and agreed with my words above. I may not be able to spend US dollars worldwide, but I can trade dollars worldwide for local currency.
Incidentally, half of the cash registers in the Mexican city of Tijuana, for example, accept only foreign currency – namely U.S. dollars. These Mexican cash registers do not accept Mexican pesos.
Continued below…
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@ Jure Jordan:
PART 2 of 2
“But you can easilly (sic) find people anywhere willing to exchange dollars for domestic currency, even a person at the cash register will exchange it for you, at a good discount of course. Even though it is illegal to do such exchange, it happens everywhere.
On the other hand I can find banks anywhere to exchange my country currency for a domestic one. Or just use my card at any transaction in any country, where the exchange will happen behind the Central Banks agreements between countries. Your description is very, very outdated one.”
You contradict yourself. You repeat exactly the same thing I wrote, and you concede that what I said is correct and timely, and then you claim that what you are I both wrote is “very, very outdated.”
“If Botswanna's private persons want to buy foreign cars, the Botswana's Central bank has to come up with Dollars to enable the import. It usually is by borrowing from exporting country banks in their currency. That is where the debt comes from. From people buying foreign products, not from states buying, but from private sector. A Central bank has to borrow to facilitate private buying from foreign production.”
Again you are repeating what I said myself. What is your point?
“Another big mistake of yours is the thinking that there is a country that does not create money out of thin air. All countries create money out of thin air. Greece creates Euros out of thin air. Why do you say that it does not? Greek banks do it all the time, not the state itself, and then after the fact the ECB approves it or not as in some cases.”
Yes Greek banks create euros out of thin air, but this is loan money. By contrast, the Greek government cannot create euros out of thin air, since the Greek government is not monetarily sovereign.
Since Greece has a trade deficit, the Greek GOVERNMENT is forced to borrow all its euros from banks in Greece and abroad.
I don’t know why you refuse to listen to simple logic, but thank you for commenting.
All countries create money out of thin air.
Right. "Money" as a higher-order abstraction involves a credit-debt relationship. Anyone can create money as their own liability but this functions only to the degree that others can be induced (or forced) to accept one's liabilities as credit, i.e., an asset for them. That is to say, they must be willing to hold (save) that liability as an asset, even momentarily before exchanging it.
Prospective issuers are constrained by the conditions necessary to induce other to hold one's liabilities, or the ability to force them to do so.
The difference is the degree of constraint that is imposed on this arrangement institutionally, which may involve domestic and external factors.
The ability to impose and enforce tax obligations in a currency forces a need to hold that currency as a sufficient condition.
Even coinage in precious metals are created out of thin air by the process of minting and stamping and the addition of "sovereignty." Coinage that is nearly worth the face value is a way to induce others to hold the coinage.
Of course, trust in the issuer to maintain the purchasing power and functionality of the currency is also a necessary requirement, in that otherwise the currency will be shunned relative to risk.
“All countries create money out of thin air.” ~ Tom Hickey
But not all governments create money out of thin air. Eurozone governments do not.
I wish that people would clarify whether they are talking about banks, or governments, or countries. These are three different entities.
I also wish that people would clarify which nation they are referring to. Some national governments have monetary sovereignty. Some do not. This makes a huge different in economic factors.
Also, as Tom says, anyone can create money out of thin air, but not everyone can get other people to accept that money as legal tender.
That said, I do not agree with the mantra that “taxes drive money.” If all U.S. local and federal taxes fell to zero, and the U.S. government still had laws regarding the use of dollars, then people would still want and use dollars. Some countries have no sales taxes or income taxes, yet they get along fine.
If it is a "money," it is out of thin air, that is, issuing liabilities.
If it is not, then it is bartering goods.
There are various conditions attached to issuing liabilities, the first being getting others to accept and hold them. This is where it gets tricky.
The central banks of the European nations issue euro out of thin air, but they are constrained in this by institutional arrangements based on agreements (treaties) that limit their currency sovereignty.
The US is also constrained institutionally (by statute) in that deficit spending has to be funded by treasury securities and there is a debt limit imposed. The US full sovereignty over its currency but is restricted in its use by law.
Being sovereign politically, both the US and European nations have the right to change this, in the US by changing the law and in the EZ either by changing the treaty in conjunction with the other states, or else withdrawing from the treaty. since there is no political union, there is no block in the way of sovereign states using their sovereignty. While it would be messy, it is legal.
If it is a "money," it is out of thin air, that is, issuing liabilities. Tom Hickey
Shares in Equity, common stock, are also "out of thin air."
If it is not, then it is bartering goods. ibid
Common stock, shares in Equity, like Liabilities, are also backed by Assets of the issuer - by those Assets in excess of Liabilities. Thus, it's a stretch to call common stock mere bartering goods.
Instead, common stock is more accurately described as a form of private money - one that requires no usury or profit taking and which "shares" wealth and power rather than consolidate them.
There are various conditions attached to issuing liabilities, the first being getting others to accept and hold them. This is where it gets tricky. ibid
Tricky is right since banks require a great deal of explicit and implicit privilege from government to entice and force citizens to use their liabilities rather than, except for mere physical fiat, aka "cash", their Nation's own fiat.
Otoh, common stock requires no government privileges but why share one's Equity when government privileges for the banks allow the so-called "credit worthy" to use the public's credit but for private gain?
Equities are not considered "money." Equities must be "liquidated" to access their monetary value.
Debt of non-zero maturity is not considered "money."
Properties of "money" include being the most liquid financial asset and also having zero maturity.
"Money" is the basis of liquidity in a monetary economy.
"Money" signifies a high-order abstraction (superset, set of sets) where all the subsets share the common properties that define the superset "money."
Konrad
So, you do accept that you have to exchange your dollars first and then buy with foreign currency in that foreign country.
First you have to exchange it. DO you understand that? The ease with which you exchange you confuse with "accepting dollars". I am telling you again that no cash register will accept dollars in my country. It is simply illegal. And that is how it is in most of the countries.
If You wanna talk about trading illegally then that is another talk and you should go with cripto currency talk but not about state debts and so on.
Your Argentina example is false. Argentina does not have a huge trade deficit but it did recently tried to borrow on the open market in order to pay for old debts that were present before bankruptcy. The new government was bought by bankers/ vulture funds that bought old Argentina debts for 20 cents on a dollar and now Argentine's gov is trying to cover for those old debts on which it defaulted and that is why it is in trouble again. The trouble has nothing to do with trade deficit or surplus.
Again, import accounts are separated from export accounts. Again, exports do not pay for imports. Those are separate accounts and very usually different countries that owe or credit a country and whose accounts are measured to make a total. That is why all countries have reserves pretty close to debts, but importantly: total reserves to total debts.
DO you know that US has reserves close to its debts, (either foreign or domestic) yet what you hear all the time is only about debts. SO, you caught onto the propaganda that is pointing you only towards the debts but will not let you know about reserves. That is why you are confused and into usual propaganda moderated thinking.
If you want to be like a child and play with "who's been in another country" then please go to child playground sites and argue about that with them.
It is all about who is allowed to trade in their own currency and who is not. "Former" empires do not allow "former" colonies to trade in their own currency.
All countries and governments create money out of thin air and that ammount is recorded as debt. That is the purpose of those accounts: to keep track of the debt/creation of money but economically they have no use.
Yet, the foreign banks can suddenly decide to blackmail a particular country into submission and take over their banks. The ammount of debt is not important. Even the 20% debts can be used to crush a country and blackmail it if that country Central Bank Governor agrees with it and follow the propaganda and does not act in a way that benefits his own country.
Yanis Varoufacis was removed from his position when he attempted to bypass Greek Central Bank Governor who led Greece into the abbys. Tsipras removed Yannis once he offered only possible exit out of the crisis: Remove the CB Governor who raised the interest rates even though the Greece went into the economic crisis. This act is the one that sunk Greece into the present position.
Idiot Governors who raise interest rates when country goes into the crisis is what is marked for those countries "debt problem countries"
All those "former" empire Governors lower the interest rates as crisis starts and "former" colonist Governors raise the rates as crisis hit.
There is nothing about debts nor about "reserve currency" nor about trade situation.
It is ALWAYS about idiots who raise the interest rates as crisis starts to hit.
ABSOLUTLY ALWAYS
You are just fooled by propaganda. Just as those idiot Governors who destroy their own countries.
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