5 ms·

Massive defaults of states doesn't make sense. A country that have debt in its sovereign currency have not need to default. Inflation is not precisely the pro

Massive defaults of states doesn't make sense. A country that have debt in its sovereign currency have not need to default. Inflation is not precisely the problem now, is it?

cm2187 11y ago
Then if you do not believe in default or inflation, what exactly do you think will happen? 1000% debt to GDP?
- RobertoG 11y ago
  I believe in inflation. I just said it is not the problem now. Inflation happens when there is more demand from the economy that economy can satisfy or when there are too much strong demand of imported goods. What it is a fiction is public debt in monetary sovereign governments: http://bilbo.economicoutlook.net/blog/?p=31715 http://bilbo.economicoutlook.net/blog/?p=31715
  - cm2187 11y ago
    The sort of inflation we are talking about here is when the government will print money to pay their debt. This type of inflation will be wiping out savings and pensioners.
    - RobertoG 11y ago
      So, we agree that default is not an issue? If there is any doubt here is in the words of Alan Greespan: "The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default" http://www.cnbc.com/id/44051683 http://www.cnbc.com/id/44051683 Can we agree also that inflation is not a problem at the moment?
      - cm2187 11y ago
        I am not sure what is the point of inflation being a problem at the moment. What I am saying is that savings will be wiped out by inflation. As for governments defaults, history is full of governments defaulting even on debt in their own currencies, particularly in time of political instability. I am not sure what gives you the confidence that now things are different and that this will not happen.
        RobertoG 11y ago
        Money is debt. Debt is a promise of something. You default when you can't keep your promise. If you promise gold or another country currency in exchange of yours, you can be in a position where you can't pay. If the only thing you promise is to accept your currency back as tax payment, you are never in a position where you can't pay. That inflation is low now is relevant because it invalidate the quantity of money view of inflation. We are in the middle of a huge "quantitative easing" and we don't see inflation. In fact we see the opposite. For instance, the ECB is injecting (if I remember properly, I didn't check) 80000 millions every month. So, the "common sense" view of inflation have been proved wrong again and again but, we continue hearing the same thing again and again.
      - msandford 11y ago
        "Technical default" and "Effective default" are obviously different, but if the purchasing power of the dollars you're paid in are only 1% of the dollars you've loaned, that's effective default. If the government practices effective default over a period of 50 years most people don't really get it. If the government practices effective default over 3-6 months, everyone will understand and it could be very destructive. It would definitely cause a lot of social unrest.
        RobertoG 11y ago
        Do you know what makes people poorer? Closing public services, not investing in infrastructure, reducing spending in science and technology, reducing spending in public education and public health. Those are real things. Why not we worry about this?
        msandford 11y ago
        Do you know what else makes people poorer? Having fixed expenses (housing) and roughly fixed income (salary) and growing expenses (food, clothing, energy, entertainment, etc). As your income grows slower than inflation -- and for many people it does -- your variable expenses grow and you have to start giving things up. You can't give up housing and you can't give up food so you have to buy cheaper food, cheaper clothing, etc. Of course, infrastructure spending is totally dwarfed by wars/military budget, so it's kind of disingenuous to suggest that in order to spend on infrastructure, public education or public health that debt must be accumulated. Cut the military budget by half and you can go hog wild, while still balancing the budget.
        RobertoG 11y ago
        Maybe you can explain what is the mechanism in what salaries are fixed but inflation grow. "Cut the military budget by half " You will not hear me complain about that.
        msandford 11y ago
    - kspaans 11y ago
      That's why you shouldn't keep most of your savings in cash. Non-cash assets can help you protect against inflation like this. But I do agree that if you've got a defined-benefit pension plan, your e.g. $500/mo will be doing less for you each year.
gruez 11y ago
>A country that have debt in its sovereign currency have not need to default. How did that work out for Argentina?
- RobertoG 11y ago
  Argentina currency was pegged to the Dollar, so not so sovereign. Also, a lot of their public and private debt was denominated in foreign currency. Again, not so sovereign.
  - conanbatt 11y ago
    The constant inflation made it only possible to issue bonds in a foreign currency. Sustained inflation does not solve public debt, because it also devalues the taxes the government gets back, creating a negative feedback loop of deficit and inflation (argentina's path in the last 10 years)
    - RobertoG 11y ago
      "The constant inflation made it only possible to issue bonds in a foreign currency." Why is that? I think the problem in this discussions is that every side come from a different conception about what is and where money comes from. A sovereign govern with a floating currency don't need financing from private sources in its own money. That's a simple fact about how money is really created. If we don't agree in this first, all posterior discussion is pointless.
- Gmo 11y ago
  Their debt was in dollars

Massive defaults of states doesn't make sense. A country that have debt in its sovereign currency have not need to default. Inflation is not precisely the problem now, is it?

cm2187 11y ago

Then if you do not believe in default or inflation, what exactly do you think will happen? 1000% debt to GDP?

RobertoG 11y ago
I believe in inflation. I just said it is not the problem now. Inflation happens when there is more demand from the economy that economy can satisfy or when there are too much strong demand of imported goods. What it is a fiction is public debt in monetary sovereign governments: http://bilbo.economicoutlook.net/blog/?p=31715 http://bilbo.economicoutlook.net/blog/?p=31715
- cm2187 11y ago
  The sort of inflation we are talking about here is when the government will print money to pay their debt. This type of inflation will be wiping out savings and pensioners.
  - RobertoG 11y ago
    So, we agree that default is not an issue? If there is any doubt here is in the words of Alan Greespan: "The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default" http://www.cnbc.com/id/44051683 http://www.cnbc.com/id/44051683 Can we agree also that inflation is not a problem at the moment?
    - cm2187 11y ago
      I am not sure what is the point of inflation being a problem at the moment. What I am saying is that savings will be wiped out by inflation. As for governments defaults, history is full of governments defaulting even on debt in their own currencies, particularly in time of political instability. I am not sure what gives you the confidence that now things are different and that this will not happen.
      - RobertoG 11y ago
        Money is debt. Debt is a promise of something. You default when you can't keep your promise. If you promise gold or another country currency in exchange of yours, you can be in a position where you can't pay. If the only thing you promise is to accept your currency back as tax payment, you are never in a position where you can't pay. That inflation is low now is relevant because it invalidate the quantity of money view of inflation. We are in the middle of a huge "quantitative easing" and we don't see inflation. In fact we see the opposite. For instance, the ECB is injecting (if I remember properly, I didn't check) 80000 millions every month. So, the "common sense" view of inflation have been proved wrong again and again but, we continue hearing the same thing again and again.
    - msandford 11y ago
      "Technical default" and "Effective default" are obviously different, but if the purchasing power of the dollars you're paid in are only 1% of the dollars you've loaned, that's effective default. If the government practices effective default over a period of 50 years most people don't really get it. If the government practices effective default over 3-6 months, everyone will understand and it could be very destructive. It would definitely cause a lot of social unrest.
      - RobertoG 11y ago
        Do you know what makes people poorer? Closing public services, not investing in infrastructure, reducing spending in science and technology, reducing spending in public education and public health. Those are real things. Why not we worry about this?
        msandford 11y ago
        Do you know what else makes people poorer? Having fixed expenses (housing) and roughly fixed income (salary) and growing expenses (food, clothing, energy, entertainment, etc). As your income grows slower than inflation -- and for many people it does -- your variable expenses grow and you have to start giving things up. You can't give up housing and you can't give up food so you have to buy cheaper food, cheaper clothing, etc. Of course, infrastructure spending is totally dwarfed by wars/military budget, so it's kind of disingenuous to suggest that in order to spend on infrastructure, public education or public health that debt must be accumulated. Cut the military budget by half and you can go hog wild, while still balancing the budget.
        RobertoG 11y ago
        Maybe you can explain what is the mechanism in what salaries are fixed but inflation grow. "Cut the military budget by half " You will not hear me complain about that.
        msandford 11y ago
  - kspaans 11y ago
    That's why you shouldn't keep most of your savings in cash. Non-cash assets can help you protect against inflation like this. But I do agree that if you've got a defined-benefit pension plan, your e.g. $500/mo will be doing less for you each year.

gruez 11y ago

>A country that have debt in its sovereign currency have not need to default. How did that work out for Argentina?

RobertoG 11y ago
Argentina currency was pegged to the Dollar, so not so sovereign. Also, a lot of their public and private debt was denominated in foreign currency. Again, not so sovereign.
- conanbatt 11y ago
  The constant inflation made it only possible to issue bonds in a foreign currency. Sustained inflation does not solve public debt, because it also devalues the taxes the government gets back, creating a negative feedback loop of deficit and inflation (argentina's path in the last 10 years)
  - RobertoG 11y ago
    "The constant inflation made it only possible to issue bonds in a foreign currency." Why is that? I think the problem in this discussions is that every side come from a different conception about what is and where money comes from. A sovereign govern with a floating currency don't need financing from private sources in its own money. That's a simple fact about how money is really created. If we don't agree in this first, all posterior discussion is pointless.
Gmo 11y ago
Their debt was in dollars