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If that "debt" is denominated in USD, the US cannot default. Really what is national debt in a nation with soft (non-exchangeable for gold) sovereign currency

If that "debt" is denominated in USD, the US cannot default. Really what is national debt in a nation with soft (non-exchangeable for gold) sovereign currency and limited foreign-denominated debt other than an increase in the money supply - or a commitment to make such increase when bonds mature?

wpietri 9y ago
The US can absolutely default. You're correct that they also can inflate away the debt. But it's perfectly plausible that nativists would tell foreign lenders to fuck off. Note the increasing willingness of the US right to inch up close to a debt default: https://qz.com/1062153/will-trump-actually-default-on-the-us-governments-debt/ https://qz.com/1062153/will-trump-actually-default-on-the-us...
- fineline 9y ago
  OK I am not an economist, but here's my 2c (of my own currency...) You're right, I phrased it incorrectly - the US could indeed default on its "debt" if it chose too - and maybe the current administration is more inclined to consider doing so - but it would be a choice - it never has to, if it chooses not to. One thing the US can't and won't ever do is pay down all that debt. The associated contraction in the money supply would be economically devastating, and is basically inconceivable. To quote the last line of your linked article "As far as the debt limit is concerned, the government really shouldn’t be run like a business." Sometimes this concept is bandied around, that a government is like a household or a business and needs to balance its budget. This is wrong, a government (of a country with sovereign currency and limited foreign-denominated debt) is a government, and should govern, adjusting the money supply to help balance the economy, letting off steam (by running a surplus, taxing more than it spends and taking money out of the economy) when the economy is running "hot" and opening the throttle (by running a deficit, spending more than it taxes and putting money into the economy) when the economy is running below capacity - excess unemployment and underemployment, productive capital laying idle etc. (The devil is of course in the detail, with different regions and sectors performing very differently, and lots of purely political distortions.) Over time an economy that grows will naturally require more money to operate, so the default state of public finance should be deficit. It is somewhat inappropriate and unfortunate that we characterise this as "debt".
  - wpietri 9y ago
    Sure, I agree that the US defaulting on its debt would at this point be a choice. If we got into Japan levels of debt, it's not so clear; inflating away that level of debt means massive inflation, which could be economically devastating. I disagree that the US couldn't pay off its debt. Back when Greenspan was running the Fed, this looked like a possible outcome. People were worried that it would be problematic if the US stopped selling T-bills, as so much is benchmarked to them. The easy solution was to keep on doing some borrowing at the same time as running a surplus elsewhere, so that the US did have some debt, but was not a net debtor. But I don't recall anybody saying it would be devastating.

wpietri 9y ago

The US can absolutely default. You're correct that they also can inflate away the debt. But it's perfectly plausible that nativists would tell foreign lenders to fuck off. Note the increasing willingness of the US right to inch up close to a debt default: https://qz.com/1062153/will-trump-actually-default-on-the-us-governments-debt/ https://qz.com/1062153/will-trump-actually-default-on-the-us...

fineline 9y ago
OK I am not an economist, but here's my 2c (of my own currency...) You're right, I phrased it incorrectly - the US could indeed default on its "debt" if it chose too - and maybe the current administration is more inclined to consider doing so - but it would be a choice - it never has to, if it chooses not to. One thing the US can't and won't ever do is pay down all that debt. The associated contraction in the money supply would be economically devastating, and is basically inconceivable. To quote the last line of your linked article "As far as the debt limit is concerned, the government really shouldn’t be run like a business." Sometimes this concept is bandied around, that a government is like a household or a business and needs to balance its budget. This is wrong, a government (of a country with sovereign currency and limited foreign-denominated debt) is a government, and should govern, adjusting the money supply to help balance the economy, letting off steam (by running a surplus, taxing more than it spends and taking money out of the economy) when the economy is running "hot" and opening the throttle (by running a deficit, spending more than it taxes and putting money into the economy) when the economy is running below capacity - excess unemployment and underemployment, productive capital laying idle etc. (The devil is of course in the detail, with different regions and sectors performing very differently, and lots of purely political distortions.) Over time an economy that grows will naturally require more money to operate, so the default state of public finance should be deficit. It is somewhat inappropriate and unfortunate that we characterise this as "debt".
- wpietri 9y ago
  Sure, I agree that the US defaulting on its debt would at this point be a choice. If we got into Japan levels of debt, it's not so clear; inflating away that level of debt means massive inflation, which could be economically devastating. I disagree that the US couldn't pay off its debt. Back when Greenspan was running the Fed, this looked like a possible outcome. People were worried that it would be problematic if the US stopped selling T-bills, as so much is benchmarked to them. The easy solution was to keep on doing some borrowing at the same time as running a surplus elsewhere, so that the US did have some debt, but was not a net debtor. But I don't recall anybody saying it would be devastating.