4 ms·

They cannot run out of US dollars, ever. I hoped point 2 would make it clear I think this a specious argument. A soft default (what you espouse when you say th

They cannot run out of US dollars, ever. I hoped point 2 would make it clear I think this a specious argument. A soft default (what you espouse when you say they can’t run out of dollars) is just a default by another name. If they truly can’t run out of dollars, why bother with taxes at all - just keep printing dollars? A soft default is arguably more pernicious than simply defaulting - it hurts future generations as well as the present. The EU has a central bank, engages in QE, sets interest rates etc, and has the same problems with inequality as any other large super-state like the US has. It also redistributes funds to poorer regions. There are clear differences, but also striking parallels with the early US. The states within it have chosen to subsume their economic identity within a larger bloc, they have the same ability to print Euros as a group as the united states (and have done so). Austerity was a political choice, imposed by the troika, it is not the only possible solution. Just to take one example, the EU could have engaged in more QE (or another variant of money printing), in order to fund Greece debt, but it was not judged politically expedient in Germany to do so.

User23 8y ago
"Soft default" is a completely meaningless term used only by "hard" money enthusiasts–which apparently means gold and now distributed computer games ledgers. The reality is there is no such thing as a "soft default," there is just an elastic money supply. At what level of elasticity does it stop being normal balance sheet expansion and start being "soft default?" I find it helpful when discussing literally quantifiable subjects like sovereign accounting, to stick to terms that can be meaningfully defined. Those who do not are being ignorant or dishonest.
- grey-area 8y ago
  At what level of elasticity does it stop being normal balance sheet expansion and start being "soft default?" A flexible money supply and low, controlled inflation are good. Using inflation as a way of avoiding debts and obligations is not good (and yet so tempting that rulers have attempted to do so throughout history, with disastrous results). Doesn’t really matter what you choose to call it, but money is not infinitely elastic, and high inflation has nasty consequences.
  - User23 8y ago
    Nobody said money is infinitely elastic, it observably isn't. It's arbitrarily elastic. Default "hard," "soft," or "gooey" implies reneging on an agreement. The Federal Reserve's agreement with its primary currency user requires maximum employment, stable prices, and moderate long-term interest rates. It also promises to pay you dollars for your dollars. More importantly, the vast majority of money used by citizens and thus that can have an effect on inflation (which is caused by too much money chasing too few goods and services) isn't controlled by the Federal Government or the Federal Reserve. It's created ex nihilo as deposits in privately owned licensed banks. Is a bank "soft" defaulting on its depositors every time it creates a mortgage which results in the creation of new deposits, often in the amounts thousands of times larger than the typical depositor's entire account?
    - grey-area 8y ago
      They cannot run out of US dollars, ever. This implies an infinitely elastic money supply, where creating it has no impact on assets prices or inflation. The high inflation caused by that attitude would be a violation of the implicit contract with creditors and citizens. The money supply created by external banks is still controlled by the government indirectly via various levers (interest rates, buying bonds, reserve requirements etc). Defaults come in all shapes and sizes - most defaults are not a straightforward loss of all money but negotiated haircut(s) of some kind (see greece defaults rercently), similar to the gradual loss of spending power caused by inflating away debt. Inflating away debt is preferred by governments precisely because it is so hard to calibrate and nobody really notices it, but it is a dangerous game when taken to extremes and taken for granted (as the parent advocated).
stephen_g 8y ago
Taxes are really important, even if they don’t really ‘finance’ monetarily sovereign Governments at all. From a macro perspective, it’s basically as if taxation destroys money and new money appears when they spend (unlike private bank accounts, where money transferred between them still stays in the economy). Of course, it looks like taxes fund spending because of the accounting involved (because it actually did in gold standard days, and things are mostly recorded in the same way just because that’s what people have always done) and various policy, etc. That’s why the idea of a ‘soft default’ doesn’t really exist in the modern economy. Basically, taxes are the main anti-inflationary mechanism that the economy has. The Government needs to spend money (and the private sector really needs them to spend, because in the modern economy we can’t create new money without creating debt - only the Government can do that), but if they spent without taxing aggregate demand would be way too high and you’d get inflation. The Government doesn’t need your money at all, but they do need the private sector to not have it and spend it. Some economists looking at these kind of monetary issues call that ‘fiscal space’. Secondly, you need taxation to have a stable currency, because it creates a baseline demand. Without a population of people required to pay taxes in a currency, it may become more attractive to the private sector to switch to a different currency. Third, taxes are useful for encouraging (by tax breaks) or discouraging certain activities (by taxing them more). And finally, taxes can serve a redistributive purpose if you have a progressive system, reducing the financial assets of the wealthy somewhat while balancing it out a bit with spending. By the way, you still haven’t understood what I mean about the EU...

User23 8y ago

"Soft default" is a completely meaningless term used only by "hard" money enthusiasts–which apparently means gold and now distributed computer games ledgers. The reality is there is no such thing as a "soft default," there is just an elastic money supply. At what level of elasticity does it stop being normal balance sheet expansion and start being "soft default?" I find it helpful when discussing literally quantifiable subjects like sovereign accounting, to stick to terms that can be meaningfully defined. Those who do not are being ignorant or dishonest.

grey-area 8y ago
At what level of elasticity does it stop being normal balance sheet expansion and start being "soft default?" A flexible money supply and low, controlled inflation are good. Using inflation as a way of avoiding debts and obligations is not good (and yet so tempting that rulers have attempted to do so throughout history, with disastrous results). Doesn’t really matter what you choose to call it, but money is not infinitely elastic, and high inflation has nasty consequences.
- User23 8y ago
  Nobody said money is infinitely elastic, it observably isn't. It's arbitrarily elastic. Default "hard," "soft," or "gooey" implies reneging on an agreement. The Federal Reserve's agreement with its primary currency user requires maximum employment, stable prices, and moderate long-term interest rates. It also promises to pay you dollars for your dollars. More importantly, the vast majority of money used by citizens and thus that can have an effect on inflation (which is caused by too much money chasing too few goods and services) isn't controlled by the Federal Government or the Federal Reserve. It's created ex nihilo as deposits in privately owned licensed banks. Is a bank "soft" defaulting on its depositors every time it creates a mortgage which results in the creation of new deposits, often in the amounts thousands of times larger than the typical depositor's entire account?
  - grey-area 8y ago
    They cannot run out of US dollars, ever. This implies an infinitely elastic money supply, where creating it has no impact on assets prices or inflation. The high inflation caused by that attitude would be a violation of the implicit contract with creditors and citizens. The money supply created by external banks is still controlled by the government indirectly via various levers (interest rates, buying bonds, reserve requirements etc). Defaults come in all shapes and sizes - most defaults are not a straightforward loss of all money but negotiated haircut(s) of some kind (see greece defaults rercently), similar to the gradual loss of spending power caused by inflating away debt. Inflating away debt is preferred by governments precisely because it is so hard to calibrate and nobody really notices it, but it is a dangerous game when taken to extremes and taken for granted (as the parent advocated).

stephen_g 8y ago

Taxes are really important, even if they don’t really ‘finance’ monetarily sovereign Governments at all. From a macro perspective, it’s basically as if taxation destroys money and new money appears when they spend (unlike private bank accounts, where money transferred between them still stays in the economy). Of course, it looks like taxes fund spending because of the accounting involved (because it actually did in gold standard days, and things are mostly recorded in the same way just because that’s what people have always done) and various policy, etc. That’s why the idea of a ‘soft default’ doesn’t really exist in the modern economy. Basically, taxes are the main anti-inflationary mechanism that the economy has. The Government needs to spend money (and the private sector really needs them to spend, because in the modern economy we can’t create new money without creating debt - only the Government can do that), but if they spent without taxing aggregate demand would be way too high and you’d get inflation. The Government doesn’t need your money at all, but they do need the private sector to not have it and spend it. Some economists looking at these kind of monetary issues call that ‘fiscal space’. Secondly, you need taxation to have a stable currency, because it creates a baseline demand. Without a population of people required to pay taxes in a currency, it may become more attractive to the private sector to switch to a different currency. Third, taxes are useful for encouraging (by tax breaks) or discouraging certain activities (by taxing them more). And finally, taxes can serve a redistributive purpose if you have a progressive system, reducing the financial assets of the wealthy somewhat while balancing it out a bit with spending. By the way, you still haven’t understood what I mean about the EU...