4 ms·

Are you sure there have never been issues with countries issuing debt? I can think of many off the top of my head.

atq2119 6y ago
The question is: can you think of any that involved debt nominated in the country's own currency? All examples I've ever read or heard of involved foreign currency debt, or to be more precise, debt in a currency that the country in question didn't control (e.g. developing countries with USD-denominated debt, Euro-zone countries, historical cases with debt denominated in gold, etc.). That's an important qualitative difference.
- eru 6y ago
  See eg https://en.wikipedia.org/wiki/History_of_the_British_national_debt#World_War_I https://en.wikipedia.org/wiki/History_of_the_British_nationa... > By the mid-1920s, interest on [British] government debt was absorbing 44% of all government expenditure, [...] That definitely sounds like an issue. Without the debt, they presumably could have cut taxes in about half. (And gold standard or not doesn't make too much of a difference, if you have a firm commitment to keep inflation in check and not to default on your debt either.)
  - khafra 6y ago
    > > By the mid-1920s, interest on [British] government debt was absorbing 44% of all government expenditure, [...] That definitely sounds like an issue. Without the debt, they presumably could have cut taxes in about half. That's not an issue if, by taking on the debt, the government allowed the economy to grow sufficiently faster. The conservative analogy to a household budget doesn't make sense. Analogizing to a startup where you're best off taking on debt for more capital, to increase growth, also don't make sense. But it's an open question, which of these makes the least sense.
    - eru 6y ago
      > That's not an issue if, by taking on the debt, the government allowed the economy to grow sufficiently faster. Perhaps. Though that's a big If. Most government expenditures in practice are more like consumption than investment. (In Britain's case, the expenditure was sui generis: the first World War.) You also have to worry about crowding out (https://en.wikipedia.org/wiki/Crowding_out_(economics) https://en.wikipedia.org/wiki/Crowding_out_(economics)): whatever resources the government uses, the private sector can't use. So the yardstick for 'sufficiently faster' is not some absolute positive return, but the comparison to what the private sector would have done with the resources. > The conservative analogy to a household budget doesn't make sense. Analogizing to a startup where you're best off taking on debt for more capital, to increase growth, also don't make sense. But it's an open question, which of these makes the least sense. Please explain. As far as I can tell, making the household budget analogy work is almost the definition of competent monetary policy. So that analogy is more of an 'ought' than an 'is'. The 'startup analogy' is perhaps more apt for small open economies. Though even there the total amount that foreigners are willing to lend the country as a whole is probably finite and limited by the country's total future earnings. Those total future earnings have to pay back the debt; either directly in the private sector, or indirectly via taxes. Now, IF you have incompetent monetary policy, then indeed the household budget analogy breaks down. Incompetent monetary policy means that total nominal spending in the economy is not stabilized, and so fiscal stimulus MIGHT make sense. (Interestingly, the conceptually simplest way to have competent monetary policy is to have no monetary police. Ie leave note issuing to a private laissez faire financial sector. That tends to stabilize total nominal spending in the economy. See the Canadian experience https://www.alt-m.org/2015/07/29/there-was-no-place-like-canada/ https://www.alt-m.org/2015/07/29/there-was-no-place-like-can... for a close enough approximation in the real world.)
      - atq2119 6y ago
        Crowding out in the sense of preventing the private sector from using resources would only happen hand in hand with inflation, which an earlier commenter already identified as the real limit of deficits. Crowding out in the traditional sense of discouraging the private sector from investment is really a function of interest rates. For a government that runs its own, free-floating currency, interest rates are a policy variable independent from deficit and debt. That even competent monetary policy cannot be relied on to make the household analogy work was proven empirically beyond any reasonable doubt via the famous "zero lower bound". There is also the question of whether monetary policy should even try to make the household analogy hold. This is ultimately a political question, and especially in a democracy there a good reasons why it shouldn't.
- JackFr 6y ago
  Venezuela, Russia and Ukraine all defaulted in debt in their own currency as recently as 1998. Argentina has had an ongoing partial default in peso denominated debt.
  - shkkmo 6y ago
    Russia did have sizeable foreign debt, they just didn't default on it. I think issues in these particular countries is related to a combination of foreign debt and trying to keep their exchange rate within a fixed band.
- marcosdumay 6y ago
  Being a Brazilian more than 26 years old, yes, I can point you one without even thinking. Inflation has a nasty tendency of sustaining itself.
  - atq2119 6y ago
    You're talking inflation though, not debt. I don't know much about what you're referring to, and a cursory search did not provide any evidence that the root cause of sustained high inflation in Brazil was debt at any time, much less debt in Brazil's own sovereign currency. Nobody disputes that bad governance can lead to high inflation. The point of dispute is whether we have to reduce debt today because in the future that high debt may lead to hyperinflation, recession, or some other negative economic outcome that is so bad that its badness would outweigh the badness of austerity measures implemented today.
    - marcosdumay 6y ago
      Honestly, I have never seen any serious debate on the issue, mostly because I don't know of anybody that from the late 70's up to 94 that even contested it was caused by the ever growing domestic debt. But yes, now that you have cited it, there aren't many mainstream media articles in English that say it. I couldn't find any either.

The question is: can you think of any that involved debt nominated in the country's own currency? All examples I've ever read or heard of involved foreign currency debt, or to be more precise, debt in a currency that the country in question didn't control (e.g. developing countries with USD-denominated debt, Euro-zone countries, historical cases with debt denominated in gold, etc.). That's an important qualitative difference.

eru 6y ago
See eg https://en.wikipedia.org/wiki/History_of_the_British_national_debt#World_War_I https://en.wikipedia.org/wiki/History_of_the_British_nationa... > By the mid-1920s, interest on [British] government debt was absorbing 44% of all government expenditure, [...] That definitely sounds like an issue. Without the debt, they presumably could have cut taxes in about half. (And gold standard or not doesn't make too much of a difference, if you have a firm commitment to keep inflation in check and not to default on your debt either.)
- khafra 6y ago
  > > By the mid-1920s, interest on [British] government debt was absorbing 44% of all government expenditure, [...] That definitely sounds like an issue. Without the debt, they presumably could have cut taxes in about half. That's not an issue if, by taking on the debt, the government allowed the economy to grow sufficiently faster. The conservative analogy to a household budget doesn't make sense. Analogizing to a startup where you're best off taking on debt for more capital, to increase growth, also don't make sense. But it's an open question, which of these makes the least sense.
  - eru 6y ago
    > That's not an issue if, by taking on the debt, the government allowed the economy to grow sufficiently faster. Perhaps. Though that's a big If. Most government expenditures in practice are more like consumption than investment. (In Britain's case, the expenditure was sui generis: the first World War.) You also have to worry about crowding out (https://en.wikipedia.org/wiki/Crowding_out_(economics) https://en.wikipedia.org/wiki/Crowding_out_(economics)): whatever resources the government uses, the private sector can't use. So the yardstick for 'sufficiently faster' is not some absolute positive return, but the comparison to what the private sector would have done with the resources. > The conservative analogy to a household budget doesn't make sense. Analogizing to a startup where you're best off taking on debt for more capital, to increase growth, also don't make sense. But it's an open question, which of these makes the least sense. Please explain. As far as I can tell, making the household budget analogy work is almost the definition of competent monetary policy. So that analogy is more of an 'ought' than an 'is'. The 'startup analogy' is perhaps more apt for small open economies. Though even there the total amount that foreigners are willing to lend the country as a whole is probably finite and limited by the country's total future earnings. Those total future earnings have to pay back the debt; either directly in the private sector, or indirectly via taxes. Now, IF you have incompetent monetary policy, then indeed the household budget analogy breaks down. Incompetent monetary policy means that total nominal spending in the economy is not stabilized, and so fiscal stimulus MIGHT make sense. (Interestingly, the conceptually simplest way to have competent monetary policy is to have no monetary police. Ie leave note issuing to a private laissez faire financial sector. That tends to stabilize total nominal spending in the economy. See the Canadian experience https://www.alt-m.org/2015/07/29/there-was-no-place-like-canada/ https://www.alt-m.org/2015/07/29/there-was-no-place-like-can... for a close enough approximation in the real world.)
    - atq2119 6y ago
      Crowding out in the sense of preventing the private sector from using resources would only happen hand in hand with inflation, which an earlier commenter already identified as the real limit of deficits. Crowding out in the traditional sense of discouraging the private sector from investment is really a function of interest rates. For a government that runs its own, free-floating currency, interest rates are a policy variable independent from deficit and debt. That even competent monetary policy cannot be relied on to make the household analogy work was proven empirically beyond any reasonable doubt via the famous "zero lower bound". There is also the question of whether monetary policy should even try to make the household analogy hold. This is ultimately a political question, and especially in a democracy there a good reasons why it shouldn't.
JackFr 6y ago
Venezuela, Russia and Ukraine all defaulted in debt in their own currency as recently as 1998. Argentina has had an ongoing partial default in peso denominated debt.
- shkkmo 6y ago
  Russia did have sizeable foreign debt, they just didn't default on it. I think issues in these particular countries is related to a combination of foreign debt and trying to keep their exchange rate within a fixed band.
marcosdumay 6y ago
Being a Brazilian more than 26 years old, yes, I can point you one without even thinking. Inflation has a nasty tendency of sustaining itself.
- atq2119 6y ago
  You're talking inflation though, not debt. I don't know much about what you're referring to, and a cursory search did not provide any evidence that the root cause of sustained high inflation in Brazil was debt at any time, much less debt in Brazil's own sovereign currency. Nobody disputes that bad governance can lead to high inflation. The point of dispute is whether we have to reduce debt today because in the future that high debt may lead to hyperinflation, recession, or some other negative economic outcome that is so bad that its badness would outweigh the badness of austerity measures implemented today.
  - marcosdumay 6y ago
    Honestly, I have never seen any serious debate on the issue, mostly because I don't know of anybody that from the late 70's up to 94 that even contested it was caused by the ever growing domestic debt. But yes, now that you have cited it, there aren't many mainstream media articles in English that say it. I couldn't find any either.