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I think the biggest thing to keep in mind is that the Federal Government of a monetarily sovereign nation (like the US, UK, Japan, Australia, etc.) plays by dif

I think the biggest thing to keep in mind is that the Federal Government of a monetarily sovereign nation (like the US, UK, Japan, Australia, etc.) plays by different rules to a household or business. This could be a massive problem if the debt was denominated in a currency other than US dollars (which the US Government controls the monopoly currency issuer for). But since all of the US's debt is in US dollars, and they're not constrained by artificial limitations like commodity convertibility or fixed exchange rates, it's just an interesting fact that doesn't actually really matter much. The real killers are excessive private sector debt, and even worse, debt denominated in a foreign currency.

yuhong 8y ago
That is partly because of the petrodollar BTW.
- jsoc815 8y ago
  As I understand it, the USD's strength is a function of the petrodollar. The petrodollar is supposedly a function of the U.S. military power. IIRC a old PBS doc about Saudi Arabia explained that the Saudi's were made and offer that [they] couldn't refuse to 1) price in and accept USD; and 2) supply @ at price levels deemed reasonable by the U.S. Obviously, they've lost some ability to control price w/the advent of the technology and the futures exchanges, but still...
- JumpCrisscross 8y ago
  > That is partly because of the petrodollar BTW No, it's not. It's because Americans are massive consumers. We buy things, domestically and internationally, with U.S. dollars which in turn fuels demand for U.S. dollar-denominated assets. Attributing the dollar's hegemony to its use in commodities pricing reverses cause and effect.
  - yuhong 8y ago
    Well, it dates back to when the gold standard ended in 1971, and then there was the oil crisis in 1973 etc.
    - JumpCrisscross 8y ago
      > it dates back to when the gold standard ended in 1971, and then there was the oil crisis in 1973 The U.S. dollar was put at the centre of the Bretton Woods system in 1944 [1] because the United States, at the end of WWII, (a) held a global nuclear monopoly and (b) was the sole industrial power not bombed to the turn of the century. The dollar thus took its central place in global trade. That, in turn, led to oil being priced and traded in dollars. [1] https://en.wikipedia.org/wiki/Bretton_Woods_Conference https://en.wikipedia.org/wiki/Bretton_Woods_Conference
  - lrajlich 8y ago
    Foreign demand for USD does in effect lower US govt borrowing costs given our situation of having a fairly large trade deficit as well. Petroleum is one example of foreign USD demand (china buys oil with USD, for example), as are central bank reserve holdings, real estate transactions in Argentina, and I'm sure there are other examples as well. These foreign demands for USD in effect lower our borrowing cost as it prevents the USD from being dumped, eg, prevent a devaluation of the USD by foreign holders of USD, which allows us to keep interest rates low and thus finance a large deficit cheaply (so the govt keeps doing it).
    - JumpCrisscross 8y ago
      > Foreign demand for USD does in effect lower US govt borrowing costs This is correct. But petroleum trading in dollars is an effect of the dollar's hegemony, not a cause. Every dollar transaction contributes to the dollar's network effects. But petroleum's contribution is small and overstated. Petrodollar hypotheses are closer to conspiracy theories than useful models. The U.S. dollar is underwritten, ultimately, by American consumption. About 15% of American imports are petroleum [1][2], so it's a significant factor. But it's not special in any particular regard. [1] https://traderiskguaranty.com/trgpeak/what-are-the-top-10-u-s-imports/ https://traderiskguaranty.com/trgpeak/what-are-the-top-10-u-... [2] https://wits.worldbank.org/CountrySnapshot/en/USA/textview https://wits.worldbank.org/CountrySnapshot/en/USA/textview
- adventured 8y ago
  You're inverting cause and effect. The petro link to the dollar is because the US was the first major oil nation, it had a relatively dependable currency, and it developed the world's largest market economy. The dollar didn't become standard due to oil, oil (and most every other commodity) became priced in dollars because of the might of the US economy. Japan's debt being overwhelmingly domestic, priced in yen, is also not due to the petroyen (which doesn't exist).
SkyMarshal 8y ago
The notion this can go on indefinitely with no repercussions just bc the debt is denominated in our own currency doesn’t square with reality. Everything has a cost.
- maxerickson 8y ago
  The big cost of the national debt is that we have stuff now instead of later.
  - damptowel 8y ago
    That’s only true of external debt. I.e. debts owed to other currency areas. Government debt is just the number of funds from the currency originator (central bank) to it’s distributor (treasury). Both institutions are a subject of the nation state, which is controlled by the government. So it’s not a “debt” in any colloquial sense of the term, neither is it an intergenerational transfer, since the souvereign nation state is an institution that both creates and enforces it’s own currency... which by definition implies it can create as much money (“debt”/“credit”) as it seems fit.
    - maxerickson 8y ago
      Yeah, "instead of later" would have been better constructed as "instead of waiting".
- zzzzzzzza 8y ago
  that cost would be inflation, but inflation is not even close to unreasonable levels. In fact, 2% ish inflation is healthy, so the "cost" is really more of a benefit at this point.
  - jrs235 8y ago
    I often wonder how many people have thought about inflation as a tax on the poor. It hurts those with less discretionary funds the most. I also think it's ridiculous what the government does and does not include in it's inflation calculation(s).

yuhong 8y ago

That is partly because of the petrodollar BTW.

jsoc815 8y ago
As I understand it, the USD's strength is a function of the petrodollar. The petrodollar is supposedly a function of the U.S. military power. IIRC a old PBS doc about Saudi Arabia explained that the Saudi's were made and offer that [they] couldn't refuse to 1) price in and accept USD; and 2) supply @ at price levels deemed reasonable by the U.S. Obviously, they've lost some ability to control price w/the advent of the technology and the futures exchanges, but still...
JumpCrisscross 8y ago
> That is partly because of the petrodollar BTW No, it's not. It's because Americans are massive consumers. We buy things, domestically and internationally, with U.S. dollars which in turn fuels demand for U.S. dollar-denominated assets. Attributing the dollar's hegemony to its use in commodities pricing reverses cause and effect.
- yuhong 8y ago
  Well, it dates back to when the gold standard ended in 1971, and then there was the oil crisis in 1973 etc.
  - JumpCrisscross 8y ago
    > it dates back to when the gold standard ended in 1971, and then there was the oil crisis in 1973 The U.S. dollar was put at the centre of the Bretton Woods system in 1944 [1] because the United States, at the end of WWII, (a) held a global nuclear monopoly and (b) was the sole industrial power not bombed to the turn of the century. The dollar thus took its central place in global trade. That, in turn, led to oil being priced and traded in dollars. [1] https://en.wikipedia.org/wiki/Bretton_Woods_Conference https://en.wikipedia.org/wiki/Bretton_Woods_Conference
- lrajlich 8y ago
  Foreign demand for USD does in effect lower US govt borrowing costs given our situation of having a fairly large trade deficit as well. Petroleum is one example of foreign USD demand (china buys oil with USD, for example), as are central bank reserve holdings, real estate transactions in Argentina, and I'm sure there are other examples as well. These foreign demands for USD in effect lower our borrowing cost as it prevents the USD from being dumped, eg, prevent a devaluation of the USD by foreign holders of USD, which allows us to keep interest rates low and thus finance a large deficit cheaply (so the govt keeps doing it).
  - JumpCrisscross 8y ago
    > Foreign demand for USD does in effect lower US govt borrowing costs This is correct. But petroleum trading in dollars is an effect of the dollar's hegemony, not a cause. Every dollar transaction contributes to the dollar's network effects. But petroleum's contribution is small and overstated. Petrodollar hypotheses are closer to conspiracy theories than useful models. The U.S. dollar is underwritten, ultimately, by American consumption. About 15% of American imports are petroleum [1][2], so it's a significant factor. But it's not special in any particular regard. [1] https://traderiskguaranty.com/trgpeak/what-are-the-top-10-u-s-imports/ https://traderiskguaranty.com/trgpeak/what-are-the-top-10-u-... [2] https://wits.worldbank.org/CountrySnapshot/en/USA/textview https://wits.worldbank.org/CountrySnapshot/en/USA/textview
adventured 8y ago
You're inverting cause and effect. The petro link to the dollar is because the US was the first major oil nation, it had a relatively dependable currency, and it developed the world's largest market economy. The dollar didn't become standard due to oil, oil (and most every other commodity) became priced in dollars because of the might of the US economy. Japan's debt being overwhelmingly domestic, priced in yen, is also not due to the petroyen (which doesn't exist).

SkyMarshal 8y ago

The notion this can go on indefinitely with no repercussions just bc the debt is denominated in our own currency doesn’t square with reality. Everything has a cost.

maxerickson 8y ago
The big cost of the national debt is that we have stuff now instead of later.
- damptowel 8y ago
  That’s only true of external debt. I.e. debts owed to other currency areas. Government debt is just the number of funds from the currency originator (central bank) to it’s distributor (treasury). Both institutions are a subject of the nation state, which is controlled by the government. So it’s not a “debt” in any colloquial sense of the term, neither is it an intergenerational transfer, since the souvereign nation state is an institution that both creates and enforces it’s own currency... which by definition implies it can create as much money (“debt”/“credit”) as it seems fit.
  - maxerickson 8y ago
    Yeah, "instead of later" would have been better constructed as "instead of waiting".
zzzzzzzza 8y ago
that cost would be inflation, but inflation is not even close to unreasonable levels. In fact, 2% ish inflation is healthy, so the "cost" is really more of a benefit at this point.
- jrs235 8y ago
  I often wonder how many people have thought about inflation as a tax on the poor. It hurts those with less discretionary funds the most. I also think it's ridiculous what the government does and does not include in it's inflation calculation(s).