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What does the arbitrary (fictional) debt ceiling have to do with the dollar? Other countries have successfully kicked the ball down the road (via a number of fi

What does the arbitrary (fictional) debt ceiling have to do with the dollar? Other countries have successfully kicked the ball down the road (via a number of financial tricks) for longer. This feels like a pretty thin element of the rationale.

toast0 3y ago
Most dollar reserves are held in treasury securities. They're as good as dollars and easier to transfer. But, only if payment is on time. If treasury debt repayment is ocassionally late, it becomes a much more complex asset to manage. A dollar tomorrow isn't the same as a dollar today, and sometimes a dollar today is what's needed.
- smileysteve 3y ago
  Or in case of default, no guarantee the debt will be paid at all.
  - toast0 3y ago
    Technically, the debt is in default when it is not timely paid. There's clearly a danger of that if a deal isn't struck in time. Assuming it's resolved quickly each time, it's more complex, but not a huge deal. I don't think there's much danger of the debt not being paid at all, or paid at less than agreed face value and coupons. That would be a whole different thing, the 14th amendment says all public debts of the United States are valid, and to do otherwise would be a huge change, with major consequences. People don't buy long term Treasury securities because they think it's a good credit risk, they do it because they think there's no credit risk. If that changes, the whole game changes.
SQueeeeeL 3y ago
It simply shows growing political instability of the US. We see this all over the place: the inability to successfully tackle major issues (shown by yearly fights over debts), bizarre socio-political ideas on the rise, and the last two holders of highest political office being a former gameshow host and an 80 year old who's main qualification was being second in command to a former leader. If you're a major CEO of a French finical firm, all these factors will start to influence your internal model of how stable the nation state will be in the coming decades
- Scubabear68 3y ago
  Biden had been a U.S. Senator for decades and chaired powerful committees. Age may be an issue but I don’t think his experience should be in question.
  - SQueeeeeL 3y ago
    I actually agree, but it seemed extremely obvious that he had no real desire to run and really wanted to step away from politics. But the current political system has become such that the only way one can become the top official is via "celebrity" status (i.e. we treat politicians as an entertainment commodity in the US); it's very arguable this became an issue with televised debates and the Reagan presidency (he was a very popular actor). Basically we're past the point of finding extremely qualified individuals as leaders, now it's much more of a popularity contest
    - nocoiner 3y ago
      Isn’t Biden a counterexample to this point? Also, I’m not sure that this country has ever really selected leaders based on innate leadership potential (whatever that may be). Sometimes it selects for celebrity (I think GWB and Obama were arguably both in this bucket, despite traditional-ish political backgrounds), sometimes generals, sometimes Republican senators from Ohio. But even for the presidents who turned out to be tremendously powerful leaders (Lincoln, FDR, LBJ), I’m not sure that was a deliberate choice by the voters ex ante (and obviously not in the case of LBJ).
      - SQueeeeeL 3y ago
        Yeah, democracy is a fundamentally flawed system in that way, the Greeks were heavily aware of the popularity contest potential of it as a governing system. It's essentially the job of the "political elites" who heavily manipulate the system (through mechanisms like primaries and candidacy criteria) to not let too many elderly plutocrats get into office; because that signals instability to the rest of the geopolitical players. The fact that our political elites can no longer maintain the steady state of "respectable" leadership in America, and are being forced to compromise for goofy polarizing candidates is actually very concerning for long term view of the nation
ajsharp 3y ago
The fact that other countries have defaulted and the US never has is one of the key reasons why US govt bonds are considered "riskless", and contributes hugely to reserve currency status. Which is to say, market actors use it for lots of stuff they don't even think twice about b/c there is an implicit assumption that the US will never default on it's obligations.
- simple-thoughts 3y ago
  Other countries continued to use the dollar even after the Usa defaulted on its obligation by closing the gold window. There’s a bit more going on that trust in USA - most dollars are issued by private entities in overseas markets.
  - marcosdumay 3y ago
    They didn't. They mostly didn't use US govt bonds at that time, and the change was made by disconnecting other currencies from the dollar (but, granted, not at once).
  - peoplearepeople 3y ago
    What does it mean to privately issue a dollar?
    - simple-thoughts 3y ago
      Run an offshore bank or shadow bank with dollar accounts then credit the account with dollars. Ideally backed by dollar denominated assets so you don’t get a bank run.

toast0 3y ago

Most dollar reserves are held in treasury securities. They're as good as dollars and easier to transfer. But, only if payment is on time. If treasury debt repayment is ocassionally late, it becomes a much more complex asset to manage. A dollar tomorrow isn't the same as a dollar today, and sometimes a dollar today is what's needed.

smileysteve 3y ago
Or in case of default, no guarantee the debt will be paid at all.
- toast0 3y ago
  Technically, the debt is in default when it is not timely paid. There's clearly a danger of that if a deal isn't struck in time. Assuming it's resolved quickly each time, it's more complex, but not a huge deal. I don't think there's much danger of the debt not being paid at all, or paid at less than agreed face value and coupons. That would be a whole different thing, the 14th amendment says all public debts of the United States are valid, and to do otherwise would be a huge change, with major consequences. People don't buy long term Treasury securities because they think it's a good credit risk, they do it because they think there's no credit risk. If that changes, the whole game changes.

SQueeeeeL 3y ago

It simply shows growing political instability of the US. We see this all over the place: the inability to successfully tackle major issues (shown by yearly fights over debts), bizarre socio-political ideas on the rise, and the last two holders of highest political office being a former gameshow host and an 80 year old who's main qualification was being second in command to a former leader. If you're a major CEO of a French finical firm, all these factors will start to influence your internal model of how stable the nation state will be in the coming decades

Scubabear68 3y ago
Biden had been a U.S. Senator for decades and chaired powerful committees. Age may be an issue but I don’t think his experience should be in question.
- SQueeeeeL 3y ago
  I actually agree, but it seemed extremely obvious that he had no real desire to run and really wanted to step away from politics. But the current political system has become such that the only way one can become the top official is via "celebrity" status (i.e. we treat politicians as an entertainment commodity in the US); it's very arguable this became an issue with televised debates and the Reagan presidency (he was a very popular actor). Basically we're past the point of finding extremely qualified individuals as leaders, now it's much more of a popularity contest
  - nocoiner 3y ago
    Isn’t Biden a counterexample to this point? Also, I’m not sure that this country has ever really selected leaders based on innate leadership potential (whatever that may be). Sometimes it selects for celebrity (I think GWB and Obama were arguably both in this bucket, despite traditional-ish political backgrounds), sometimes generals, sometimes Republican senators from Ohio. But even for the presidents who turned out to be tremendously powerful leaders (Lincoln, FDR, LBJ), I’m not sure that was a deliberate choice by the voters ex ante (and obviously not in the case of LBJ).
    - SQueeeeeL 3y ago
      Yeah, democracy is a fundamentally flawed system in that way, the Greeks were heavily aware of the popularity contest potential of it as a governing system. It's essentially the job of the "political elites" who heavily manipulate the system (through mechanisms like primaries and candidacy criteria) to not let too many elderly plutocrats get into office; because that signals instability to the rest of the geopolitical players. The fact that our political elites can no longer maintain the steady state of "respectable" leadership in America, and are being forced to compromise for goofy polarizing candidates is actually very concerning for long term view of the nation

ajsharp 3y ago

The fact that other countries have defaulted and the US never has is one of the key reasons why US govt bonds are considered "riskless", and contributes hugely to reserve currency status. Which is to say, market actors use it for lots of stuff they don't even think twice about b/c there is an implicit assumption that the US will never default on it's obligations.

simple-thoughts 3y ago
Other countries continued to use the dollar even after the Usa defaulted on its obligation by closing the gold window. There’s a bit more going on that trust in USA - most dollars are issued by private entities in overseas markets.
- marcosdumay 3y ago
  They didn't. They mostly didn't use US govt bonds at that time, and the change was made by disconnecting other currencies from the dollar (but, granted, not at once).
- peoplearepeople 3y ago
  What does it mean to privately issue a dollar?
  - simple-thoughts 3y ago
    Run an offshore bank or shadow bank with dollar accounts then credit the account with dollars. Ideally backed by dollar denominated assets so you don’t get a bank run.