9 ms·

Wish that article finished with why this is good or bad for America, what real effects it has..

jjeaff 7y ago
I can tell you some reasons it's not bad. You commonly hear about how we are indebted China or whoever and because of that, they wield power over us. This isn't loan shark style debt. The US holds all the cards in this case. It's sort of like, the mantra, "if you owe the bank millions of dollars, it's your problem". If you owe them billions, it's their problem. The US could even pay back that debt with money they themselves issued if needed.
- n0t-satoshi 7y ago
  "The US could even pay back that debt with money they themselves issued if needed." Hyperinflation is effectively defaulting. No one will give credit to those who pay with Monopoly money.
  - deleted 7y ago
    [deleted]
  - laser 7y ago
    Taking debt to pay back debt does not automatically lead to hyperinflation. The US federal government currently takes debt every year to pay off debt. That's sustainable so long as these payments stay a relatively small percentage of the total revenue. Unfortunately, as debt to GDP ratio continues to rise, if inflation drives interest rates to rise, things can get messy pretty quickly.
  - RobertoG 7y ago
    Most (all of them?) episodes of hyperinflation, including the infamous Weimar Republic and Zimbabwe, are not caused by "printing" too much money, but by a fall in the productive capacity of the economy. Here, Zimbabwe for hyperventilators: http://bilbo.economicoutlook.net/blog/?p=3773 http://bilbo.economicoutlook.net/blog/?p=3773
    - Retric 7y ago
      That’s misleading. Without creating an ever larger money supply hyper inflation can’t continue. Similarly, hyper inflation requires the state to continue to exist. For example various currency’s have dropped so their only value is as a novelty item or physical object. But once it hits that point it’s value can’t continue to fall.
      - RobertoG 7y ago
        We are talking about causality here. In my opinion, it's misleading to insist that the cause of hyperinflation is "printing" money and, never mention, that the real cause is the falling in the productive capacity of the economy. For instance, the narrative about the Zimbabwe crisis is always the same: The government just went crazy and started to print money. In my opinion, that's a totally dishonest narrative (and politically motivated maybe?), when what really happened is that they destroyed their main productive activity (agriculture). >>"Similarly, hyper inflation requires the state to continue to exist." Well, yes, of course, are you saying that the state stopping to exist would be a better alternative?
        chr1 7y ago
        The drop in productive capacity of the economy was much smaller than the drop in the value of their currency, so going crazy and destroying agriculture was responsible for the first part of inflation, but staying crazy and printing money was responsible for the most of it.
        RobertoG 7y ago
        Can you support that with some data of citation? I would recommend you to read the below link. It doesn't seem to me that the problem was "printing too much money". From http://bilbo.economicoutlook.net/blog/?p=3773 http://bilbo.economicoutlook.net/blog/?p=3773 : -Unemployment rose to 80 per cent or more and many of those employed scratch around for a part-time living. -45 per cent of the food output capacity was destroyed. -In 2007, there was a 57 percent decline in export mineral shipments (see Financial Gazette for various reports etc). -Manufacturing output fell by 29 per cent in 2005, 18 per cent in 2006 and 28 per cent in 2007. In 2007, only 18.9 per cent of Zimbabwe’s industrial capacity was being used. This reflected a range of things including raw material shortages. But overall, the manufacturers blamed the central bank for stalling their access to foreign exchange which is needed to buy imported raw materials etc. The Reserve Bank of Zimbabwe is using foreign reserves to import food. So you see the causality chain – trash your domestic food supply and then have to rely on imported food, which in turn, squeezes importers of raw materials who cannot get access to foreign exchange. So not only has the agricultural capacity been destroyed, what manufacturing capacity the economy had is being barely utilised.
  - navigatesol 7y ago
    >No one will give credit to those who pay with Monopoly money. The creditors are also using Monopoly money.
  - zazagura 7y ago
    You are naive. Argentina is a serial defaulter, every decade or so it defaults on it's debt. The next day creditors line up to give it money again. It's hilarious. https://ftalphaville.ft.com/2019/04/30/1556614127000/Why-investors-keep-coming-back-to-Argentina/ https://ftalphaville.ft.com/2019/04/30/1556614127000/Why-inv...
    - toyg 7y ago
      Ish. They still have high inflation levels (which hurt the working classes), low economic activity, and struggle every day. I agree that state-level credit dynamics are unique, but playing like they don’t matter at all typically lands one into trouble.
      - RobertoG 7y ago
        The problem (one of them) with Argentina is that they don't have industry, so simple like that. That's the trap where many countries are stuck. Because in order to develop an industry you need investments and protection of the new industry until it's able to compete. Investment can't be only in your currency because you need to import things for the new industry. And protection is "discouraged" by those that are already developed (1). (1)[pdf] - http://www.personal.ceu.hu/corliss/CDST_Course_Site/Readings_old_2012_files/Ha-Joon%20Chang%20-%20Kicking%20Away%20the%20Ladder-The%20%E2%80%9CReal%E2%80%9D%20History%20of%20Free%20Trade.pdf http://www.personal.ceu.hu/corliss/CDST_Course_Site/Readings...
    - RobertoG 7y ago
      The important thing about external debt is: is the debt denominated in your currency? Because if you are Argentina (a country with little industry and exports) and you get a debt in Dollars in order to be able to import, of course you can get in the situation where you have to default your debt in a foreign denominated currency.
    - conanbatt 7y ago
      The debt pays very high interest in argentina.
    - 7y ago
  - thoughtstheseus 7y ago
    Yeah, that's why you don't want to do it(inflate debt away) but you can if you need to. It's never a bad thing to have a get out of jail free card on standby.
    - doubleunplussed 7y ago
      That's different. If the government prints money and spends it on goods and services in the economy to cause inflation, that would be 'inflating the debt away'. On the other hand if they print money solely to pay the debts, and they do not spend it on anything other than paying the debt, then that will not cause much inflation because the investors are most likely going to reinvest the money again, and it will not circulate in the economy. The result may not be much inflation at all.
      - thoughtstheseus 7y ago
        There is >10x as much fed debt as M0 cash... it’ll cause inflation.
  - doubleunplussed 7y ago
    I forget where I read it, but I found it convincing, that printing money to pay debt to large investors does not cause significant inflation. The investors will not spend the cash on consumer goods, they will probably just loan it right back to you and the money remains locked up and not circulating in the economy. There ought to be nonzero inflation as a result, but only a tiny fraction as much as if the money were injected at the bottom where people are more likely to spend than save.
    - jganetsk 7y ago
      The idea that a government with control over its own currency can print money to pay debt without significant inflation is a part of Modern Monetary Theory. Here's a blog post explaining it: http://bilbo.economicoutlook.net/blog/?p=31715 http://bilbo.economicoutlook.net/blog/?p=31715
  - jganetsk 7y ago
    Are you sure issuing money to pay off debt leads to inflation? Citation needed. I assume you would cite the quantity theory of money [1], which says that "the general price level of goods and services is directly proportional to the amount of money in circulation, or money supply." Using the quantity theory of money as your model, how do you define the size of the money supply? Do you include or exclude government debt? It is a highly liquid financial asset, so maybe it should be included. Maybe not at par, but at some discount. If it is included at par, then monetizing the debt (issuing new money and buying debt with it) [2] does not change the money supply. Here's the math: money supply is M + D (money + debt), and you monetize X dollars of debt, then the new money supply is (M + X) + (D - X), which is equal to M + D. Therefore, according to the model, we should not expect inflation. Note that, in the US in the last 10 years, the Federal Reserve monetized trillions of dollars of debt [3]. Has there been hyperinflation, as you would claim? [1] https://en.wikipedia.org/wiki/Quantity_theory_of_money https://en.wikipedia.org/wiki/Quantity_theory_of_money [2] https://en.wikipedia.org/wiki/Monetization#Debt_monetization https://en.wikipedia.org/wiki/Monetization#Debt_monetization [3] https://en.wikipedia.org/wiki/Quantitative_easing#US_QE1,_QE2,_and_QE3 https://en.wikipedia.org/wiki/Quantitative_easing#US_QE1,_QE...
- JumpCrisscross 7y ago
  > The US could even pay back that debt with money they themselves issued if needed Intergovernmental debt is a geopolitical concern. The U.S. could freeze interest payments and redemptions to China. It could place those holdings in receivership and pass a law granting those oppressed by Beijing damages from it. With international debt, the debtor holds the cards.
  - luckylion 7y ago
    > With international debt, the debtor holds the cards. I think this sentence needs "if the debtor has equal or superior military capabilities". Some small country owing to the US certainly isn't in the same position.
    - zazagura 7y ago
      Not true. Please point to a case where US attacked a defaulting debtor. You can't, because using the military against a defaulting debtor is against UN law.
      - luckylion 7y ago
        You shouldn't put words into my mouth. A military intervention is always on the table - what pretense you use is a different question. That the US has been very liberal with the pretenses in the recent decades is well documented. The fact of the matter is that military strength is what -internationally- decides who holds the cards.
        zazagura 7y ago
        Not in matters of debt. Just look at how EU was forced to erase more than 50% of Greece's debt. Or look at how US hedge funds are still fighting Argentina (in court) to recoup some of the money. According to your logic US should have threatened Argentina by now.
        luckylion 7y ago
- bubble_talk 7y ago
  That's an overly simplistic analysis. >>If you owe them billions, it's their problem. It is also entirely possible that if the US decides to actually make this (say) China's problem by overtly refusing to pay back the debt, everyone else who holds US Treasuries would start dumping them, driving demand lower and lower until both (US and China) the giant economies come crashing down. That is, this may not a zero sum game. By which I mean, both countries could lose (and also end up taking the entire world economy down with them for at least a while).

I can tell you some reasons it's not bad. You commonly hear about how we are indebted China or whoever and because of that, they wield power over us. This isn't loan shark style debt. The US holds all the cards in this case. It's sort of like, the mantra, "if you owe the bank millions of dollars, it's your problem". If you owe them billions, it's their problem. The US could even pay back that debt with money they themselves issued if needed.

n0t-satoshi 7y ago
"The US could even pay back that debt with money they themselves issued if needed." Hyperinflation is effectively defaulting. No one will give credit to those who pay with Monopoly money.
- deleted 7y ago
  [deleted]
- laser 7y ago
  Taking debt to pay back debt does not automatically lead to hyperinflation. The US federal government currently takes debt every year to pay off debt. That's sustainable so long as these payments stay a relatively small percentage of the total revenue. Unfortunately, as debt to GDP ratio continues to rise, if inflation drives interest rates to rise, things can get messy pretty quickly.
- RobertoG 7y ago
  Most (all of them?) episodes of hyperinflation, including the infamous Weimar Republic and Zimbabwe, are not caused by "printing" too much money, but by a fall in the productive capacity of the economy. Here, Zimbabwe for hyperventilators: http://bilbo.economicoutlook.net/blog/?p=3773 http://bilbo.economicoutlook.net/blog/?p=3773
  - Retric 7y ago
    That’s misleading. Without creating an ever larger money supply hyper inflation can’t continue. Similarly, hyper inflation requires the state to continue to exist. For example various currency’s have dropped so their only value is as a novelty item or physical object. But once it hits that point it’s value can’t continue to fall.
    - RobertoG 7y ago
      We are talking about causality here. In my opinion, it's misleading to insist that the cause of hyperinflation is "printing" money and, never mention, that the real cause is the falling in the productive capacity of the economy. For instance, the narrative about the Zimbabwe crisis is always the same: The government just went crazy and started to print money. In my opinion, that's a totally dishonest narrative (and politically motivated maybe?), when what really happened is that they destroyed their main productive activity (agriculture). >>"Similarly, hyper inflation requires the state to continue to exist." Well, yes, of course, are you saying that the state stopping to exist would be a better alternative?
      - chr1 7y ago
        The drop in productive capacity of the economy was much smaller than the drop in the value of their currency, so going crazy and destroying agriculture was responsible for the first part of inflation, but staying crazy and printing money was responsible for the most of it.
        RobertoG 7y ago
        Can you support that with some data of citation? I would recommend you to read the below link. It doesn't seem to me that the problem was "printing too much money". From http://bilbo.economicoutlook.net/blog/?p=3773 http://bilbo.economicoutlook.net/blog/?p=3773 : -Unemployment rose to 80 per cent or more and many of those employed scratch around for a part-time living. -45 per cent of the food output capacity was destroyed. -In 2007, there was a 57 percent decline in export mineral shipments (see Financial Gazette for various reports etc). -Manufacturing output fell by 29 per cent in 2005, 18 per cent in 2006 and 28 per cent in 2007. In 2007, only 18.9 per cent of Zimbabwe’s industrial capacity was being used. This reflected a range of things including raw material shortages. But overall, the manufacturers blamed the central bank for stalling their access to foreign exchange which is needed to buy imported raw materials etc. The Reserve Bank of Zimbabwe is using foreign reserves to import food. So you see the causality chain – trash your domestic food supply and then have to rely on imported food, which in turn, squeezes importers of raw materials who cannot get access to foreign exchange. So not only has the agricultural capacity been destroyed, what manufacturing capacity the economy had is being barely utilised.
- navigatesol 7y ago
  >No one will give credit to those who pay with Monopoly money. The creditors are also using Monopoly money.
- zazagura 7y ago
  You are naive. Argentina is a serial defaulter, every decade or so it defaults on it's debt. The next day creditors line up to give it money again. It's hilarious. https://ftalphaville.ft.com/2019/04/30/1556614127000/Why-investors-keep-coming-back-to-Argentina/ https://ftalphaville.ft.com/2019/04/30/1556614127000/Why-inv...
  - toyg 7y ago
    Ish. They still have high inflation levels (which hurt the working classes), low economic activity, and struggle every day. I agree that state-level credit dynamics are unique, but playing like they don’t matter at all typically lands one into trouble.
    - RobertoG 7y ago
      The problem (one of them) with Argentina is that they don't have industry, so simple like that. That's the trap where many countries are stuck. Because in order to develop an industry you need investments and protection of the new industry until it's able to compete. Investment can't be only in your currency because you need to import things for the new industry. And protection is "discouraged" by those that are already developed (1). (1)[pdf] - http://www.personal.ceu.hu/corliss/CDST_Course_Site/Readings_old_2012_files/Ha-Joon%20Chang%20-%20Kicking%20Away%20the%20Ladder-The%20%E2%80%9CReal%E2%80%9D%20History%20of%20Free%20Trade.pdf http://www.personal.ceu.hu/corliss/CDST_Course_Site/Readings...
  - RobertoG 7y ago
    The important thing about external debt is: is the debt denominated in your currency? Because if you are Argentina (a country with little industry and exports) and you get a debt in Dollars in order to be able to import, of course you can get in the situation where you have to default your debt in a foreign denominated currency.
  - conanbatt 7y ago
    The debt pays very high interest in argentina.
  - 7y ago
- thoughtstheseus 7y ago
  Yeah, that's why you don't want to do it(inflate debt away) but you can if you need to. It's never a bad thing to have a get out of jail free card on standby.
  - doubleunplussed 7y ago
    That's different. If the government prints money and spends it on goods and services in the economy to cause inflation, that would be 'inflating the debt away'. On the other hand if they print money solely to pay the debts, and they do not spend it on anything other than paying the debt, then that will not cause much inflation because the investors are most likely going to reinvest the money again, and it will not circulate in the economy. The result may not be much inflation at all.
    - thoughtstheseus 7y ago
      There is >10x as much fed debt as M0 cash... it’ll cause inflation.
- doubleunplussed 7y ago
  I forget where I read it, but I found it convincing, that printing money to pay debt to large investors does not cause significant inflation. The investors will not spend the cash on consumer goods, they will probably just loan it right back to you and the money remains locked up and not circulating in the economy. There ought to be nonzero inflation as a result, but only a tiny fraction as much as if the money were injected at the bottom where people are more likely to spend than save.
  - jganetsk 7y ago
    The idea that a government with control over its own currency can print money to pay debt without significant inflation is a part of Modern Monetary Theory. Here's a blog post explaining it: http://bilbo.economicoutlook.net/blog/?p=31715 http://bilbo.economicoutlook.net/blog/?p=31715
- jganetsk 7y ago
  Are you sure issuing money to pay off debt leads to inflation? Citation needed. I assume you would cite the quantity theory of money [1], which says that "the general price level of goods and services is directly proportional to the amount of money in circulation, or money supply." Using the quantity theory of money as your model, how do you define the size of the money supply? Do you include or exclude government debt? It is a highly liquid financial asset, so maybe it should be included. Maybe not at par, but at some discount. If it is included at par, then monetizing the debt (issuing new money and buying debt with it) [2] does not change the money supply. Here's the math: money supply is M + D (money + debt), and you monetize X dollars of debt, then the new money supply is (M + X) + (D - X), which is equal to M + D. Therefore, according to the model, we should not expect inflation. Note that, in the US in the last 10 years, the Federal Reserve monetized trillions of dollars of debt [3]. Has there been hyperinflation, as you would claim? [1] https://en.wikipedia.org/wiki/Quantity_theory_of_money https://en.wikipedia.org/wiki/Quantity_theory_of_money [2] https://en.wikipedia.org/wiki/Monetization#Debt_monetization https://en.wikipedia.org/wiki/Monetization#Debt_monetization [3] https://en.wikipedia.org/wiki/Quantitative_easing#US_QE1,_QE2,_and_QE3 https://en.wikipedia.org/wiki/Quantitative_easing#US_QE1,_QE...
JumpCrisscross 7y ago
> The US could even pay back that debt with money they themselves issued if needed Intergovernmental debt is a geopolitical concern. The U.S. could freeze interest payments and redemptions to China. It could place those holdings in receivership and pass a law granting those oppressed by Beijing damages from it. With international debt, the debtor holds the cards.
- luckylion 7y ago
  > With international debt, the debtor holds the cards. I think this sentence needs "if the debtor has equal or superior military capabilities". Some small country owing to the US certainly isn't in the same position.
  - zazagura 7y ago
    Not true. Please point to a case where US attacked a defaulting debtor. You can't, because using the military against a defaulting debtor is against UN law.
    - luckylion 7y ago
      You shouldn't put words into my mouth. A military intervention is always on the table - what pretense you use is a different question. That the US has been very liberal with the pretenses in the recent decades is well documented. The fact of the matter is that military strength is what -internationally- decides who holds the cards.
      - zazagura 7y ago
        Not in matters of debt. Just look at how EU was forced to erase more than 50% of Greece's debt. Or look at how US hedge funds are still fighting Argentina (in court) to recoup some of the money. According to your logic US should have threatened Argentina by now.
        luckylion 7y ago
bubble_talk 7y ago
That's an overly simplistic analysis. >>If you owe them billions, it's their problem. It is also entirely possible that if the US decides to actually make this (say) China's problem by overtly refusing to pay back the debt, everyone else who holds US Treasuries would start dumping them, driving demand lower and lower until both (US and China) the giant economies come crashing down. That is, this may not a zero sum game. By which I mean, both countries could lose (and also end up taking the entire world economy down with them for at least a while).