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Every time I bring this up, someone corrects me and says that things aren't the same these days with fiat currency and the way national debt is owed to "ourselv

by deelowe 10y ago

Every time I bring this up, someone corrects me and says that things aren't the same these days with fiat currency and the way national debt is owed to "ourselves." I don't know enough myself to counter this.

AlexCoventry 10y ago
The key idea behind the argument is that money is created by the government as a soft policy-enforcement tool, and it can and does create as much money as it needs to induce its policy choices (by funding them), while raising demand for the currency by raising taxes. (Even if you were paid entirely in "Liberty Dollars" or whatever last year, and have no other need for US dollars, in the US the IRS is going to tax you on the fair market value of your income - and the bill will be due in US dollars. This is a demand-side advantage which no other currency can match, unless it's also backed by a credible military/ police force.) This means that any debt which comes due and is denominated in the national currency could theoretically be repaid by simply creating more of the currency. Therefore, when a government raises debt denominated in its own currency, it's not trading on the credibility of its currency- denominated national income. That's the key difference from the financing of a typical household or business, which can typically raise debt according to its perceived ability to bring in disposable income. National debt is instead trading on the nation's commitment to refrain from printing money which it can't credibly raise demand for by raising taxes.
- cm2187 10y ago
  I don't understand the tax argument compensating inflation. A large part of the US debt is held outside of the US. As soon as the US will be printing dollars to repay its debt these countries will find themselves holding more dollars/liberty dollars hence the value of the dollar will sink. You can't really tax them.
  - TheCoelacanth 10y ago
    The argument isn't that you can tax the people holding the debt. The argument is that you can tax someone who owns valuable assets or productive capacity of some kind. That person will then need to acquire dollars to pay the taxes, boosting demand for dollars.
jamez1 10y ago
The trouble arises when 80% of your house is debt-funded, and everyone wants to realize the value of their debt. Turns out there will be a fair few other people who also think they own your house, and when this happens to a big chunk of the population you get in a lot of trouble.

by deelowe 10y ago

AlexCoventry 10y ago

The key idea behind the argument is that money is created by the government as a soft policy-enforcement tool, and it can and does create as much money as it needs to induce its policy choices (by funding them), while raising demand for the currency by raising taxes. (Even if you were paid entirely in "Liberty Dollars" or whatever last year, and have no other need for US dollars, in the US the IRS is going to tax you on the fair market value of your income - and the bill will be due in US dollars. This is a demand-side advantage which no other currency can match, unless it's also backed by a credible military/ police force.) This means that any debt which comes due and is denominated in the national currency could theoretically be repaid by simply creating more of the currency. Therefore, when a government raises debt denominated in its own currency, it's not trading on the credibility of its currency- denominated national income. That's the key difference from the financing of a typical household or business, which can typically raise debt according to its perceived ability to bring in disposable income. National debt is instead trading on the nation's commitment to refrain from printing money which it can't credibly raise demand for by raising taxes.

cm2187 10y ago
I don't understand the tax argument compensating inflation. A large part of the US debt is held outside of the US. As soon as the US will be printing dollars to repay its debt these countries will find themselves holding more dollars/liberty dollars hence the value of the dollar will sink. You can't really tax them.
- TheCoelacanth 10y ago
  The argument isn't that you can tax the people holding the debt. The argument is that you can tax someone who owns valuable assets or productive capacity of some kind. That person will then need to acquire dollars to pay the taxes, boosting demand for dollars.

jamez1 10y ago

The trouble arises when 80% of your house is debt-funded, and everyone wants to realize the value of their debt. Turns out there will be a fair few other people who also think they own your house, and when this happens to a big chunk of the population you get in a lot of trouble.