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> "The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default." Alan Greenspan While this
by darawk 5y ago
> "The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default." Alan Greenspan
While this is partially true:
1. Sovereign nations absolutely can and do default. See, Russia in the 1990s and the LTCM fiasco.
2. Even though they do not have to default and can always print money to pay their debts, doing so causes inflation. How much inflation it causes is proportional to how much money is printed.
Now, the dynamics of inflation are pretty complicated, so in certain circumstances you can get away with it for a while. But it is not the case that the government can print money indefinitely with zero consequences.
- jkhdigital 5y agoAnd the line between “acceptable consequences” and “catastrophic consequences” is basically unknowable, so it’s not a bad idea to err on the side of caution.
- throwaway34241 5y ago> so it’s not a bad idea to err on the side of caution Over time it's gotten harder for me to figure out what the side of caution even is. If they are too aggressive in stimulating the economy, they risk inflation. If they are not aggressive enough they risk a persistently weak economy, escalating political dysfunction, and (if history is a guide) eventual collapse of the status quo and usually even-more-inflationary policies. It doesn't seem like there is a safe path anywhere - errors on either side seem like they could be potentially catastrophic.
- xxpor 5y agoPoint 2 is extremely debatable, especially if you're a reserve currency. The balance of payments also matters.
- darawk 5y agoIt's really not debatable at all. What is debatable is how much printing it takes. It is not debatable that there exists an amount of printing that will cause inflation.
- xxpor 5y agoIt very much depends where the money ends up and what it's doing. See the past 13 years in the US and western world generally.
- sega_sai 5y agoSovereign nations can default if the debt is nominated in a different currency (which was the case of Russia, but is not the case for US)
- darawk 5y agoNo, they can default even when it is denominated in their own currency, which is what Russia did. https://en.wikipedia.org/wiki/1998_Russian_financial_crisis https://en.wikipedia.org/wiki/1998_Russian_financial_crisis Most countries just choose not to do this. They weren't forced to default. They could have chosen to monetize their debt. They just didn't choose to do that.
- User23 5y agoA sovereign could choose to default even if they somehow had a net surplus. Because, you know, sovereign literally means you can do whatever you want up to some more powerful foreign sovereign invading, because you have a local monopoly on violence.
- whatever1 5y agoIf your piece of paper is backed by the US air force, I will buy it, no matter how much you print of it.
- darawk 5y agoSure. But the rate you will buy it at will change.