So what about the crashing of the US dollar?

[Wenchang]

Distinction without a difference. The government still has a balance sheet, even if the dollar they paid out to a contractor is a different dollar than the one they collected at the IRS.

A balance sheet is simply a matter of accounting. Accounting = after the fact record keeping. It's not simply a matter of "financing" the debt when all of the money(therefore the debt and the credit both) is created by the government.

Sure, except for the times when it happened

You have to spend money to create inflation. Monetary creation is only servicing the demands that already exist. Incidentally most of those examples have little to do with the money creation itself(which is the symptom), they have to do with the value of the currency vis-à-vis a foreign currency. Argentina had its currency and many policies indexed to the U.S. dollar. Value of U.S. dollar goes up, therefore wages in Argentina go up, so prices go up, so the money supply goes up as well to finance this, and soon you have run away inflation. It's the indexing that cause inflation. Focusing on the money supply is getting the order of events backwards. Not to mention in Argentina's case the issue was the withdrawal of World Bank funds because Argentina was borrowing in foreign currencies, not the domestic currency. No one said you cannot go into inflation as the result of outside speculators operating in another currency.

Weimar Germany went into inflation because of war reparations that had to be paid with continued increases in international spending of the Mark which caused inflation because the Mark's value vis-à-vis gold, that wonderful gold standard again, went down. Another words, being tied to a foreign currency(which is what the gold standard was), creates problems you would not have otherwise had.

But none of this has any relation to what can happen to the U.S. because of its debts. The debt the U.S. owes to China or whoever is in U.S. dollars, when they pay it off, they simply credit China's account(in other words, they create the money), end of story.

Almost all of the other examples are a result of a change in the currency, without even getting into the other circumstances, which is completely irrelevant to the cases being discussed here. The United States is not abandoning the dollar.

[neorichieb1971]

One thing is for sure. You see that accounting and the man on the street cries. Why does he cry? Simply because if HE played God with money he would have done a much better job of spending it.

The USA can spend more than the GDP of the United Kingdom just making a Fighter Jet!!! So they can protect the poor homeless people on the street in NYC. So they can protect the bridges that randomly fall down. So they can protect the dam's that might fall any minute due to lack of investment. Protecting the American kids that can't afford an education.

Yeah, a real investment alright. As a species the people that rule are fucking clueless cunts.

[Specineff]

Show me a dam that may have broken in the last five years that hadn't been because of excessive rain and/or floods, please.

[neorichieb1971]

I watched a documentary about disasters that were likely to happen due to neglect and lack of investment in American dams and bridges.

It showed a lot of worrying things, but the dams held until the date they filmed and obviously have held onto now otherwise we would have heard about it. However, it made a good case that a lack of investment was evident. I have heard of one or two bridges collapsing in the USA in the past 15 years though. Although I cannot recall when and where it happened.

For $1.5 trillion the USA could have built a dam around New Orleans. Thats another place that will get hard again eventually.

[BryanM]

There're not clueless. The F-35 was designed to inject currency directly into Lockheed Martin. The plants were spread out over 47-something states so no one would vote against it. Which led to such awesome craftsmanship of hammering bits that don't fit quite right into sleek aerodynamic (bent) shapes.

Everyone knows the laws of physics haven't changed any and that the 17 and 18 gets it done. And that it's impossible to make a combat plane that's good at the three basic roles. And that unmanned drones are the weapon of the future.

[Specineff]

I watched a documentary about disasters that were likely to happen due to neglect and lack of investment in American dams and bridges.

Show. Me. One.

[Xyga]

The F-35

Yeah fighters are a major waste of money for most cuntries...

Still, I want one for Xmas, F-35B VTOL please.

Screw Ferrari, Bugatti, helicopters, yachts, THIS is the new pussy magnet;

http://www.youtube.com/watch?v=zW28Mb1YvwY

I can land this on the Croisette.

[neorichieb1971]

I watched a documentary about disasters that were likely to happen due to neglect and lack of investment in American dams and bridges.

Show. Me. One.

Can't find the doc that I saw because it was on TV.

But here is one such disaster - https://www.youtube.com/watch?v=7EosRAODQSw

edit.. actually that goes through a few mid way through with dates and places.

you also have the most railroad accidents as well...

[Specineff]

http://en.wikipedia.org/wiki/Dam_failur ... m_failures

With the exception of the Kingston fly ash pond disaster, all the listed dam failures in the USA are due to factors out of human control. I doubt tossing more money at them would have made a difference.

Also, newsflash: structures fail all over the world. It's not exclusive to the USA.

[BulletMagnet]

With the exception of the Kingston fly ash pond disaster, all the listed dam failures in the USA are due to factors out of human control. I doubt tossing more money at them would have made a difference.

That being what it is, any such structure (roads, bridges, treatment plants, etc.) is going to eventually go kaput if it's not properly maintained or replaced, and much of the country's (and, as you insinuate, likely the world's) infrastructure has gone without either for longer than most engineers recommend. If nothing else, there are far worse things to spend money on...if you're going to be spending money at all. Same reason sales of "durable goods" have fallen faster than other consumer purchases; in an effort to save, people are hoping their cars and such hold out longer than they would have liked them to.

[BryanM]

The bridges falling down due to obsolete design are the classiest. Like that one in Washington that had structurally necessary overhead beams bammed repeatedly over the years before finally eating it this one.

Talking about replacing cars, man would the electric car really cut into that racket. Replace a battery, maybe some stupid onboard computer, you've got a car that works again the end.

[neorichieb1971]

http://en.wikipedia.org/wiki/Dam_failur ... m_failures

With the exception of the Kingston fly ash pond disaster, all the listed dam failures in the USA are due to factors out of human control. I doubt tossing more money at them would have made a difference.

Also, newsflash: structures fail all over the world. It's not exclusive to the USA.

But spending 1.5 Trillion on jet fighters is. My argument is that you could build a 1000 brand new bridges for that much instead of some jet fighters that get grounded every day. No other country could afford that much to spend on such things and if they did have that money they would have the sense to spend it on something more productive.

[Specineff]

And I could buy a lot of shoes for the future with the money I spend in games to ensure I'm never barefoot.

I myself would have those grounded jets ready just in case. We don't live in the cold war years anymore, but you see, I don't need to have a dog's bared fangs in front of my face to know I shouldn't harass him or his owner.

[BryanM]

I myself would have those grounded jets ready just in case.

W, What?! The F-35 and 22?! Huh?!

You're talking about these pieces of shit that lose in combat versus Mig-21's?!

That somehow make the space shuttle boondoggle look like a rational competent decision?!

What.

[Specineff]

Well, if we make better jets, then obviously won't be any money left at all for bridges and dams!

[Ed Oscuro]

F-35 [...] sleek aerodynamic (bent) shapes.

duckhuntdog.gif

Something like that just flies because it's sitting on an engine, heck I think that's the case with the F-16 too.

[Ed Oscuro]

As far as I'm aware, there are two potential downsides to debt ("printing" alone isn't one of them, as noted above).

Lumping in private and public debt together is useless and misleading. "Theories of debt" beyond saying it's the other side of the coin of credit and that's it's a result of some sort of agreed upon standards which are enforced I have serious skepticism about.

How, then about high levels of debt? (There are at least two different kinds - private and corporate, and governmental.) Another MMT sympathizer writes "Many people summarize the options for removing excessive debt as inflate or default. While the long term result is uncertain, Japan has been carving a third option for nearly the last two decades — reduce nominal interest rates to very low levels to reduce the debt servicing burden while leaving the debt in place in an attempt to grow out of it, even if doing so is accompanied by economic stagnation" - this isn't perfect, but the idea of "deleveraging" is important here. And I think that Mitchell's response to this is that you don't have to force this crisis - rather people see that there is a high level of debt, get squeamish about it, and foolishly force a reckoning. But if you keep the level of inflation at a reasonable level, this doesn't need to be done.

Interest rates have little to do with inflation. Reducing interest rates may reduce the debt burden on some, but generally these results weaken the economy. Think about it. Who is the biggest debtor in the economy? It's not the poor, it's the federal government, just look at the deficit. The government is a net payer of interest. Reducing interest levels reduces the income from earners of interest in the private sector, taking that money out of the economy just like taxes would. This reduces demand.

One can imagine a scenario where the government increases spending while also reducing interest levels(with the idea that poor debtors are going to benefit from a reduction in interest levels while rich creditors will receive less money, and that the poor have more needs and are therefore more likely to spend on consumer products while helps businesses etc. which helps economic activity, while the rich will just hoard it), but the latter part of this probably won't do much. You're still reducing effective demand, and chances are some of those creditors will need the money to the extent that not having it will lead to investing and/or consuming less which is going to eventually hurt others in the economy.

Look at the case of Japan. A collapse resulting from an unsustainable burst of private speculation(which frankly happened as a result of liberalization of the banking system and opening it up to foreigners more). Who were the speculators? Who was buying all those high rises etc.? As you would guess, it wasn't the poor or the people who are unemployed now, it was to a great extent foreigners and local corporations. But the private debt that created led to a decrease in investment and led to lay-offs which do impact people who were not involved directly in the speculative activities.

What happens when you institute changes in interest rates? Very little for the most part, because changes in interest rates generally aren't as important as central bankers make them out to be, but let's look on the margins and explore the matter. The impact on the poor will be pretty marginal, certainly marginal when compared with the impact of losing their job or paying taxes. You might keep some of those inefficient corporations in business, but you're not stimulating demand, you're at most preventing defaults(which frequently means you're allowing debt to exist in perpetuity), and with the income of creditors being cut back you may be decreasing demand. It's not a very efficient way of doing things. Government guaranteed debt repayment, increases in spending on productive activities in the economy, reduction of taxes, any of these things would have much more impact.

There are two assumptions here, one is to assume relations between interest levels and other things which are significant, the other is a kind of Marxist idea that demand can be ignored in any rigorous sense and that everything is just about redistribution. You take away from the rich, give to the poor, that solves everything. They tried something like that under Salvador Allende in Chile in the 1970s, it lead to serious inflation and didn't solve anything(eventually the government was overthrown with help of the CIA and a violent dictator was put in place, as any leftie reader of Noam Chomsky knows).

The point is that contrary to both the ideas of trickle down economics and Marxism(both of which agree on this point, they just take different sides), you cannot in an economic sense separate the rich from the poor so simply and hope to benefit one at the expense of the other through simple transfers of resources. If this was a world with one tribe going to war and taking everything from the other, that idea works just fine. That caricatural image though is a static system, wealth exists, one group gets it from the other, there's no overall increase or decrease in the level of wealth, it's just distribution. But in the real world we know living standards, GDP, whatever metric you like can increase overall for everyone.

In a dynamic economy it's particularly not useful to think in static terms. Demand, inflation/deflation, trade, all put checks on the impact that types of redistributive policies have. That is not to say you don't have various groups benefitting more from particular policies than others, but when you're talking large scale, macro issues, like the money supply, or economic growth, or in cases of attempted redistribution plans, most policies you make are going to have large impacts that will be hard for any group(in the domestic economy at least) to escape. An economic collapse is not a case of the rich benefiting at the expense of the poor, it's not good for anyone, except very rare cases on the margins maybe.

To shift gears back to the description of how Japan's economy worked in the years where the deficit heavily grew, I have some issues how things are described. The statement "while leaving the debt in place in an attempt to grow out of it" can be misleading. In an elementary sense, for every debt there is a credit(basic accounting), so if you want to reduce private debt to stimulate demand you have an increase in public debt(unless you can make up the difference with a trade deficit, which Japan certainly could not do). But that does not mean the amount of debt at a particular time is the key variable, it's just the relationship.

One could imagine a scenario where the Japanese government spent more, which reduced private debt and increased public debt temporarily, but immediately after stimulated massive investment which decreased public debt and increased private debt. But that doesn't mean the economy was necessarily less healthy at that moment, because the actual debt level is not important. I don't think it's quite right to say "while leaving the debt in place in an attempt to grow out of it" except in as I say a very elementary sense. Yes, if they went into austerity in an attempt to reduce public debt, that would have been an economic disaster as compared with maintaining the public debt or increasing it. So in that sense it's true. But it's not the case that maintain particular debt levels is necessary, normally they will shift up and down(when you insert the foreign sector, whereas here I'm just focusing on private vs public, that's yet another variable that can change debt levels, you can theoretically have the foreign sector deficit go up with the other sectors both going into surplus), the point is that the government spending should be whatever is appropriate to deal with employment or inflation problems.

There has been no credible study that shows that overall the losses from these “costs” amount to millions of dollars of foregone output every day. There is ample evidence that mass unemployment results in huge permanent losses every day in foregone output and income.
Now, MMT does suggest you can run fiscal policy like a pyramid scheme (I think Bill Mitchell has said it that way himself). There's no fraud because it's an open process meant to be easily understood.

The policy prescription that governments should care more about employment than inflation is a sensible one, but it's also mostly an unnecessary point here. For the U.S., inflation pretty much never associated with employment, and the more fundamental point is that inflation is not caused by money creation resulting from a loss in tax revenues. First because money creation does not cause inflation by itself, and secondly because all money is created by a federal government, taxes simply collect it back afterwards.

Sorry, but could you clarify what this block of text was really in response to?

For the first quote you give, "lumping in private and public debt together" definitely was not my intention here (ironically I ran across the idea in gathering some quotes to post, but didn't feel it right to post). I didn't clarify this, but that private and public debts are separate naturally follows on from the point (discussed earlier, I think) that private and public debtors have different options available (the financial policy instruments available to a sovereign entity that aren't available to a private debtor).

As for the rest, that inflation doesn't matter much is the point I've been trying to make for a while. Inflation has been one of the chief bogeymen of the right for a while now, apparently because of squeamishness about certain financial instruments on the one hand, and an intention of preserving the value of idle capital on the other (I'm sure there are other reasons, but jealousy of the government's ability to alter the value of a dollar does not suit those who feel better suited by a regime of dollar scarcity).

[Wenchang]

One thing is for sure. You see that accounting and the man on the street cries. Why does he cry? Simply because if HE played God with money he would have done a much better job of spending it.

If everyone could create money there would be no money because it wouldn't be valuable. You need to have the ability to gain or lose it, meaning there has to be credits and debts, and there are no such things if everyone can just choose not to accept a currency(which they would certainly do if they're in debt) and create their own. There needs to enforcement of those credits/debts. That's the whole point of money, it's an agreed upon standard. It's agreed upon because there is some kind of authority backing it up. Without some kind of authority enforcing it, it's not agreed upon, and it's not valuable. Or to put it this way, no government = no money. If you want to argue against having money at all that's one thing, but all this stuff about government debt, the gold standard, or the collapse of the U.S. dollar are arguing a different point based on false premises.

Sorry, but could you clarify what this block of text was really in response to?

For the first quote you give, "lumping in private and public debt together" definitely was not my intention here (ironically I ran across the idea in gathering some quotes to post, but didn't feel it right to post). I didn't clarify this, but that private and public debts are separate naturally follows on from the point (discussed earlier, I think) that private and public debtors have different options available (the financial policy instruments available to a sovereign entity that aren't available to a private debtor).

Sorry that wall of text was an organizational mess. One was a very general point, namely you made a point that talked about two potential downsides to debt. Just in general, I don't think that's a very useful framework. Debt on a general, macro level tells you almost nothing. For an example, if the government decides it doesn't like to have debt over a certain level for an arbitrary reason, and cuts back, leading to declines in GDP(which have whatever impact you like for this example, loss of jobs etc.), you could say that's a potential downside of having a certain amount of debt.

But of course, the key variable is actually what the government chooses to do, the debt by itself doesn't matter. Here I'm talking about debt in a general sense, but if you wanted to focus on some kind of debt(debt a government owns in a foreign currency, government debt in its own currency, private debt of some kind, whatever) one could say a somewhat similar thing. You can come up with infinite downsides(or upsides for that matter) with debt so long as you don't specify what the other variables are. This is what I mean when I say "theories of debt" aren't particularly useful. Debt by itself doesn't really tell you much. I'm not merely pointing out the differences between public and private debt, and I'm not even saying debt particularly matters or doesn't matter, I'm going further and saying that debt levels in general are not a useful metric. They may have certain cases where they're useful, but talking about general impacts of debt, or even general impacts of public debt is a weird thing to do. It's a sort of obtuse and misleading way of asking what are the benefits to having money at all. So in other words, I don't agree that there are X number of downsides to debt.

The other stuff was about a particular case of Japan, where someone you quoted was talking about how what Japan has been doing is a different option from inflate or default, wherein they made two claims: 1. that central bank interest rates(and the supposed reduction in debt services the lowering of them brings) and the maintenance of debt as a way to maintain some sort of growth. I think this description is basically wrong. To elaborate on that(in a very unclear, wandering way) I first described why interest rates may not necessarily help matters(because reducing the debt burden for some is reducing the wealth of others, and since the government is the primary debtor, you're effectively taking money out of the economy in the form of reduction in interest payments), but was also getting at the idea that interest rates don't matter as much as people think.

There is this assumed relationship between interest rates and the behavior of the public, or interest rates and inflation/deflation, and I think this is basically wrong(there is incidentally little empirical basis for these claims in the first place). You could come up with imaginary extreme examples where interest levels change everything, but generally I don't think interest rates are that important, frankly. It's something that makes central bank advisors feel more important than they actually are. This may sound like a contradiction to the previous paragraph, but as I said in the last huge post that you're asking about, mostly changes in government interest rates do very little, what impact they have is comparatively small, but in that above paragraph(and in the other post) I explored some of what those small changes might be.

So that's about interest rates. As I said, the quote you posted about Japan said something about central bank interest rates and also about growing from maintaining the debt level. This second part about growth and debt, is true, but only in a trivial sense. That is, if you ignore trade, you can say that, all other things equal, if the government takes on more debt than that increases in relative terms the wealth of the private sector, and then you can also say that the economy tends to grow when the government spends more. But that's an elementary point, and it's a little misleading to say Japan was growing from maintaining debt because it implies that the debt level is the key variable. I gave an imaginary example where public debt might drop but the economy was doing better, at that sort of time period the economy would not be growing based on maintenance of the public debt but the economy was growing. So the point basically was, again, that debt is not the important variable.

Or more succinctly, all that stuff about interest rates and how they relate to debt or inflation is obfuscation and also misleading. All you need to know is that prices are not simply determined by how much money is created(they can be influenced in a number of different ways), that money is created by a government, that for every debt there's a credit, and that a government has the power to finance any amount of expenditure it wants. You don't need really to get into stuff like interest rates to point out why government debt is sustainable, that's really besides the point.

As for the rest, that inflation doesn't matter much is the point I've been trying to make for a while. Inflation has been one of the chief bogeymen of the right for a while now, apparently because of squeamishness about certain financial instruments on the one hand, and an intention of preserving the value of idle capital on the other (I'm sure there are other reasons, but jealousy of the government's ability to alter the value of a dollar does not suit those who feel better suited by a regime of dollar scarcity).

I wouldn't agree that inflation doesn't matter at all, although it's true there are elements which blow it way out of proportion. Also, it's not only the right who buys into inflation scares.

[neorichieb1971]

I still don't how the American citizens are ever going to suffer for being in debt.

I started this thread to find out what the consequences of America being between $17-18T in debt are and I haven't found an answer yet. Can someone cut to the chase and just put it in black and white what happens if the USA gets $20T, $30T, $100T in debt?

Thank you.

[BryanM]

Can someone cut to the chase and just put it in black and white what happens if the USA gets $20T, $30T, $100T in debt

Ok.

What's important isn't the debt, but the interest on the debt. Currently that's 246 billion a year, or about 6.5% of the total budget. At 20 trillion, jack shit of fuck all will happen.

If it happened tomorrow suddenly and magically, 100 trillion at current interest rates... about 30% of our government's income would go toward interest payments to rich american guys (which is the majority of who holds securities.). Whether that kind of wealth distribution is tolerable or not depends on how well the proles are eating. To bring down the interest payments down to maintainable levels: You can lower interest rates on bonds and such, or you always have the nuclear option of printing money.

It's doubtful it'd ever be allowed to come to that. It'll take several decades to get to 100 trillion, and by then interest will have increased receipts; 100 trillion of the future isn't 100 trillion of today. It's a dark uncertain future. In 50-70 years it's not even set in stone that we'll still have jobs (a rather peculiar construct of the last couple centuries).

[neorichieb1971]

Sounds like the USA has been turned into a private company feeding off taxes. Your also describing a society which cannot be hurt by means of financial needs. The rich will just trickle feed enough of those taxes back into circulation to keep the people in check. The circle only impacts the country if people stop paying taxes.

You know there isn't another country in the world that can say they have those kind of powers. I think what Russia and China are trying to do then is make you guys as vulnerable as the rest of us. I am certain this situation is the first time its happened in history where the country having the reserve currency is utilizing it in a unfair fashion.

Did anyone come across this clip from "The newsroom" show lately -

https://www.youtube.com/watch?v=1zqOYBabXmA - (didn't realize it was 2 years old)

That clip really hits home with me. It summarizes a lot about how the man on the street feels but doesn't say anything. How s/he knows they are lied to but due to having the benefits of the lies fall in their lap just don't care.