Brian Romanchuk — The U.S. Debt Limit (Preliminary Primer)

The debt limit in the United States is currently not an object of worry, but it represents one possible avenue to default. From the perspective of a non-American, it is rather difficult to understand how such a strange custom could arise. This article outlines very briefly the history of the debt limit, and then moves to discuss the risks associated with it. This issue underlines the argument that default risk in floating currency sovereigns is political risk, not financial....

Bond Economics
The U.S. Debt Limit (Preliminary Primer)
Brian Romanchuk

Brian Romanchuk — How Can A Floating Currency Sovereign Default?

I have been toying with an idea of writing a book with the title "How Can a Floating Currency Sovereign Default?" As a follower of Modern Monetary Theory (MMT), this is a bit of a joke, since the text of the book would just be: "They can't." The book can then be submitted to the World's Shortest Book Competition.

Thinking about this has led to me to the realisation that the usual way of discussing sovereign default is inherently defective. (This criticism extends to my earlier book Understanding Government Finance, unfortunately.) The usual technique is to describe the mechanisms for default, look at some models, and argue why a default is unlikely. This then runs into a hurricane of whataboutery - what about the external constraint, Russia, Iceland, etc.

I think we need to follow a different tack, and I expect to turn that into a somewhat longer book.... 

Bond Economics

How Can A Floating Currency Sovereign Default?
Brian Romanchuk

ModernMonetaryTheorist — Implications Of Trump's Statement 'U.S. Can Print Money'

Summary

• Presumptive Republican Nominee Trump has set off a firestorm economic debate declaring "United States government. First of all, you never have to default because you can print the money.".
• Trump introduces the key tenant of Modern Monetary Theory into the economic debate. The key part theorizes sovereign nations that borrow in own currency should spend to boost their economy.
• As this debate widens, it will spill into the gold markets as some people falsely fear the U.S. may kick off a bout of hyper-inflation if Trump wins the Presidency.

Seeking Alpha
Implications Of Trump's Statement 'U.S. Can Print Money'
ModernMonetaryTheorist

Bill Mitchell — The Eurozone – being ‘trapped in a dysfunctional monetary system’

On November 6, 2000, the Financial Times correspondent Wolfgang Münchau wrote in his article ‘Weak euro reflects uncertainty of euro-zone’ that “structural reforms alone will not determine whether the Emu is viable … The Europeans have no system of transfer payments and the EU budget is too small for this purpose … the euro-zone countries cannot remain as they are: they must move towards full economic union”. He also observed that the “current is clearly flowing in the opposite direction: EU governments increasingly emphasise inter-governmental co-operation as opposed to a wider role for supra-national institution”. I examined that ‘current’ extensively in my current book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale (published May 2015) – as it was (and is) a major reason the monetary union has failed. And, further, the cultural and national barriers which prevented the creation of a system-wide fiscal union are still insurmountable. Münchau is one of several journalists and commentators who have shifted their positions on the desirability of the common currency yet remains wedded to the idea of retaining it – as if returning to national currency sovereignty would be a disaster. I opposed the Maastricht proposal when it was made public and remain opposed. Restoring national currencies, while initially disruptive will not in the long-term prove to be worse than what Münchau admits is a state where nations are “trapped in a dysfunctional monetary system”.….

Bill Mitchell – billy blog
The Eurozone – being ‘trapped in a dysfunctional monetary system’
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Oleg Konyukhov — Press Digest: Is West trying to hurt Russia by driving Ukraine to default?

“It cannot be ruled out that the IMF is trying to force Russia to aid Ukraine under the threat of a default,” says deputy head of the CIS Institute Vladimir Zharikhin. “In that case, we may be left without the recovery of gas debts and the $3-billion loan issued late last year. In addition, as a result of a social upheaval, there may be a mass influx of Ukrainian immigrants into Russia.” 

According to Mikhail Delyagin, head of Russia’s Institute of Globalization Problems, leading Ukraine into bankruptcy is a deliberate policy by the West. “A default will make it possible to obtain Ukraine’s assets at minimal prices or maybe even free of charge: the energy system, the gas transportation system, ports, mineral deposits. Russia will surely write off Ukraine’s huge debts, while the West will do no such thing,” says Delyagin.

Like Michael Hudson has been saying.

The other scenario is that in the face of being forced into default the leaders of the Ukraine will seek to draw Russia into a hot war eastern Ukraine in order to draw in NATO. This is the scenario that some Russian analysts forsee as a potential move.

Russia Beyond the Headlines
Press Digest: Is West trying to hurt Russia by driving Ukraine to default?
Oleg Konyukhov

Stephanie Kelton — How to Talk About Debt and Deficits: Don’t Think of an Elephant*

Many economists (perhaps even those who agree with us) refuse to talk about the national debt and government deficits the way we do on this blog. Instead of boldly challenging the assertion that the U.S. faces a long-run debt (or deficit) problem, headline progressives typically do what Jared Bernstein did in his column today — i.e. they pay “obligatory” tribute to the Balanced Budget Gods, thereby reinforcing the case for austerity at some point in the not-so-distant future when we will be forced to to deal with this very bad thing called the government deficit. Followers of my work here and on Twitter know that I refuse to pay homage to the Balanced Budget Gods. Instead, I prefer to shift the burden of proof onto those who contend that the U.S. faces a long-term debt or deficit problem....

Charles Hayden: "God Bless our Warrior-Queen."

Amen to that.

New Economic Perspective
How to Talk About Debt and Deficits: Don’t Think of an Elephant*
Stephanie Kelton | Associate Professor of Economic and Department Chair, University of Missouri at Kansas City

Michael Pettis — Revisiting my 2011 predictions

Since the beginning of the global crisis in 2007-08 I have argued that the crisis was a consequence primarily of global trade imbalances generated by structural features that led to significant saving imbalances in China, the US, and within Europe. I describe this model in more detail in my recent book, The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy (Princeton University Press).

In that sense the current crisis shares a lot of characteristics with nearly every other global crisis of the past 200 years, as I point out in my book, and is likely to be resolved in similar ways: with a series of sovereign defaults or debt restructurings including, but not limited to, a number of European countries. None of the “globalization” cycles of the last 200 years has ended without widespread sovereign defaults except the one that ended in the First World War, and in that case the war caused soaring commodity prices and sharp constraints in Europe’s manufacturing exports, both of which were a tremendous help to developing countries. This probably why this was the only “globalization” cycle that did not end in massive sovereign defaults.

China Financial Markets
Revisiting my 2011 predictions
Michael Pettis | Professor of Finance at Guanghua School of Management, Peking University