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That guy is seriously confused. He seems to be referring to sectoral balances but doesn't realise that having the USD as the international reserve currency is w

by dools 11y ago

That guy is seriously confused. He seems to be referring to sectoral balances but doesn't realise that having the USD as the international reserve currency is what has allowed the US to consistently run trade deficits (where importing is a benefit to society and exporting is a cost), that the US government does entirely determine the ability of the US private sector to save USD and is able to pursue full employment because it is a sovereign currency issuing government, and that foreign central banks can only buy US treasury bonds in USD, and mostly do so with reserves earned by exporting to the US, with interest being paid in USD. The entire article is like economic sounding gibberish.

mooreds 11y ago
I've been following Mr Pettis for a while. I don't have a degree in economics, just a few classes and an interest. I like how he argues from identities, but can't vouch for his methods in the greater economic landscape. I'm not sure I understand all of your argument, but would be interested in your counterpoints to point 6 of his appendix on that post. Perhaps he's missing some of the benefits of a reserve currency that you espouse.
- AJ007 11y ago
  Read his book The Great Rebalancing. There are pros and cons to it, whether you think it's an overall positive or overall negative likely depends on who you are and what interests you seek. One thing I've learned, most people do not understand international trade or the balance of payments.
  - dools 11y ago
    One thing I've learned: most people do not understand even the fundamentals of how money or the economy work on any level (including most economists, and most people who work in banking, finance and government). The level of ignorance is astonishing, at all levels.
- dools 11y ago
  Point 6 in his appendix is in counterpoint to his own article in that it states the benefits to the US of the USD being the international reserve currency. Wilson and Riley's article is accurate! However they fail to mention that US denominated debt is simply an instrument for controlling the overnight interest rate target, rather than a borrowing operation used to fund government spending (ie. it's not really "debt" at all) and that the US government has the capacity to pursue full employment because it runs a sovereign, floating exchange rate currency which gives it maximum domestic policy space. Wilson and Riley correctly state that running a trade surplus is a disadvantage to the local population in that exporting everything increases costs to local consumers -- exporting is a net cost, importing is a net benefit. For more on this see: Introductory video: https://www.youtube.com/watch?v=i35uBVeNp6c https://www.youtube.com/watch?v=i35uBVeNp6c Book that describes everything in detail: http://www.amazon.com/Modern-Money-Theory-Macroeconomics-Sovereign/dp/0230368891 http://www.amazon.com/Modern-Money-Theory-Macroeconomics-Sov...
  - jacobolus 11y ago
    The Pettis post under discussion in this subthread is straight-forward analysis according to standard textbook models of international trade. Everything he says is right out of an intro undergraduate course on the subject. I don’t understand why you find it confusing. Perhaps you could elaborate a bit? (Admittedly, this stuff is clearer when spelled out over 100 pages of a textbook with a bunch of examples, clear formulae, and discussion of competing theories, vs. condensed into a blog post.) Wilson and Riley’s argument is pretty hand-wavey, full of entirely unsupported assertions. (Which is fair for a very short blog post, I suppose, but isn’t very convincing.) I’m not sure what they have to do with “Modern Money Theory”, which from what I gather in a quick web search disagrees sharply with their analysis.
    - dools 11y ago
      I don't find it confusing, I find that the man is confused about economics. I already listed the main points in my post above, although admittedly this stuff is clearer when spelled out over 100 pages of a textbook with a bunch of examples, clear formulae, and discussion of competing theories versus a post on Hacker News[1] MMT agrees with most of the points Wilson and Riley make (ie. that exporting is a cost and importing is a benefit, referred to in the article as "Seignorage", and lower transaction costs) but they're incorrect on the notion that one of the advantages of being the reserve currency is the ability to "run up huge amounts of debt at low interest rates" -- the US doesn't need to borrow US dollars, it creates US dollars. If they're referring to the advantage in being that the US private sector has been able to borrow US dollars from foreigners cheaply, then maybe that's a benefit I'm not really sure but they could just as easily have gotten that money from other banks with accounts at the Fed anyway (so long as there was sufficient cash reserves to satisfy the demand for dollars!) [1]http://www.amazon.com/Modern-Money-Theory-Macroeconomics-Sovereign/dp/0230368891 http://www.amazon.com/Modern-Money-Theory-Macroeconomics-Sov...

by dools 11y ago

mooreds 11y ago

I've been following Mr Pettis for a while. I don't have a degree in economics, just a few classes and an interest. I like how he argues from identities, but can't vouch for his methods in the greater economic landscape. I'm not sure I understand all of your argument, but would be interested in your counterpoints to point 6 of his appendix on that post. Perhaps he's missing some of the benefits of a reserve currency that you espouse.

AJ007 11y ago
Read his book The Great Rebalancing. There are pros and cons to it, whether you think it's an overall positive or overall negative likely depends on who you are and what interests you seek. One thing I've learned, most people do not understand international trade or the balance of payments.
- dools 11y ago
  One thing I've learned: most people do not understand even the fundamentals of how money or the economy work on any level (including most economists, and most people who work in banking, finance and government). The level of ignorance is astonishing, at all levels.
dools 11y ago
Point 6 in his appendix is in counterpoint to his own article in that it states the benefits to the US of the USD being the international reserve currency. Wilson and Riley's article is accurate! However they fail to mention that US denominated debt is simply an instrument for controlling the overnight interest rate target, rather than a borrowing operation used to fund government spending (ie. it's not really "debt" at all) and that the US government has the capacity to pursue full employment because it runs a sovereign, floating exchange rate currency which gives it maximum domestic policy space. Wilson and Riley correctly state that running a trade surplus is a disadvantage to the local population in that exporting everything increases costs to local consumers -- exporting is a net cost, importing is a net benefit. For more on this see: Introductory video: https://www.youtube.com/watch?v=i35uBVeNp6c https://www.youtube.com/watch?v=i35uBVeNp6c Book that describes everything in detail: http://www.amazon.com/Modern-Money-Theory-Macroeconomics-Sovereign/dp/0230368891 http://www.amazon.com/Modern-Money-Theory-Macroeconomics-Sov...
- jacobolus 11y ago
  The Pettis post under discussion in this subthread is straight-forward analysis according to standard textbook models of international trade. Everything he says is right out of an intro undergraduate course on the subject. I don’t understand why you find it confusing. Perhaps you could elaborate a bit? (Admittedly, this stuff is clearer when spelled out over 100 pages of a textbook with a bunch of examples, clear formulae, and discussion of competing theories, vs. condensed into a blog post.) Wilson and Riley’s argument is pretty hand-wavey, full of entirely unsupported assertions. (Which is fair for a very short blog post, I suppose, but isn’t very convincing.) I’m not sure what they have to do with “Modern Money Theory”, which from what I gather in a quick web search disagrees sharply with their analysis.
  - dools 11y ago
    I don't find it confusing, I find that the man is confused about economics. I already listed the main points in my post above, although admittedly this stuff is clearer when spelled out over 100 pages of a textbook with a bunch of examples, clear formulae, and discussion of competing theories versus a post on Hacker News[1] MMT agrees with most of the points Wilson and Riley make (ie. that exporting is a cost and importing is a benefit, referred to in the article as "Seignorage", and lower transaction costs) but they're incorrect on the notion that one of the advantages of being the reserve currency is the ability to "run up huge amounts of debt at low interest rates" -- the US doesn't need to borrow US dollars, it creates US dollars. If they're referring to the advantage in being that the US private sector has been able to borrow US dollars from foreigners cheaply, then maybe that's a benefit I'm not really sure but they could just as easily have gotten that money from other banks with accounts at the Fed anyway (so long as there was sufficient cash reserves to satisfy the demand for dollars!) [1]http://www.amazon.com/Modern-Money-Theory-Macroeconomics-Sovereign/dp/0230368891 http://www.amazon.com/Modern-Money-Theory-Macroeconomics-Sov...