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It's fascinating that they can say: "[..] the sustainability of its debt might be called into question" and this: "[..] backed by the Fed, which has unlimite
by RobertoG 6y ago
It's fascinating that they can say:
"[..] the sustainability of its debt might be called into question"
and this:
"[..] backed by the Fed, which has unlimited capacity to issue currency in a crisis"
in the same article and don't feel any cognitive dissonance.
Because the dollar is used, for instance, to pay for oil, there is a strong demand for dollars outside the USA that has the effect of making USA imports cheaper. So, if the dollar lost international importance, that would put the USA in the same situation that the other nations. But going from there to the idea that the USA will have problems to pay a debt in dollars makes not sense.
- j4yav 6y agoI’m not an expert, but wouldn’t that be something like increasing supply to deal with a shortage of demand?
- RobertoG 6y agoAt the end of the day, this kind of discussion is about who have the power, "the markets" or the central banks. The answer, is obviously, the central banks. You can see it all around the world, in the current crisis, what decide the interest rate and the interest of the public debt is not "the markets" is the central banks. Otherwise you will not find demand for assets that, in some cases, have negative return. So, it's not the supply and demand in the markets what decide the price, but the policy of the monetary authorities (1). (1) - This only apply for countries that have its own floating currency.
- j4yav 6y agoThanks for the additional information.
- roenxi 6y agoNobody who lends money to the US cares that the US isn't technically defaulting. They're interested in the real value of those dollars. If someone lends the US enough dollars to buy a sandwich and gets back enough dollars for 2 pieces of bread - they don't smile ruefully and say "well, they fulfilled the letter of the contract so their debt must have been sustainable". They're going to say "the US basically defaulted! I should have seen this coming, their debt as of 2021 was totally unsustainable".
- RobertoG 6y agoThe USA government is the only issuer of USA Dollars. Who is lending money to the US? Why the Chinese (for instance, now that they are fashionable) buy USA debt? Because they have a lot of dollars from selling things to the USA, so, instead of having those dollars in a checking account, they buy bonds that give them interest. Recommended talk: https://www.youtube.com/watch?v=WS9nP-BKa3M&t=1s https://www.youtube.com/watch?v=WS9nP-BKa3M&t=1s