4 ms·

Lending in Drachma to Greece is very different to lending dollars to Argentina. It’s a category mistake to conflate the two

lazide 2y ago
Care to explain? Bonus if you can compare lending to Russia too.
- neilwilson 2y ago
  Lending is really a balancing item on the accounts. By default it happens automatically and costlessly in the currency of issue. It’s only when the currency in question is somebody else’s currency that what most people understand as lending and borrowing actually happens. With a country’s own currency it’s more refinancing to a higher interest rate to provide a basic income to those who already have money - all based upon the belief that there is a magical unobservable interest rate that will balance the system. If only we could find it. A state operating its own currency is self financing. [0] Russia is like China. They are technically lending to us, and it doesn’t matter. Nor does it matter to them if we delete that debt as they use the rouble [1] [0] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4890683 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4890683 [1] https://new-wayland.com/blog/why-the-russian-oil-price-cap-wont-work/ https://new-wayland.com/blog/why-the-russian-oil-price-cap-w...
  - lazide 2y ago
    Ah yes - the issue I’m referring to is that Greece w/the Drachma controlled one half of the currency exchange involved in foreign debt. They could inflate or deflate that half they had when they needed to do other things. It wouldn’t always work well, but it existed. With debt denominated in Euros AND a local economy operating on Euros, they control zero halves. So defaulting now screws them out of their grocery money too, and not just out of their lambo money like it did before. The same (pre-Euro) situation is true of all the other examples, including Russia.

4 ms·

Lending in Drachma to Greece is very different to lending dollars to Argentina. It’s a category mistake to conflate the two

by neilwilson 2y ago

lazide 2y ago
Care to explain? Bonus if you can compare lending to Russia too.
- neilwilson 2y ago
  Lending is really a balancing item on the accounts. By default it happens automatically and costlessly in the currency of issue. It’s only when the currency in question is somebody else’s currency that what most people understand as lending and borrowing actually happens. With a country’s own currency it’s more refinancing to a higher interest rate to provide a basic income to those who already have money - all based upon the belief that there is a magical unobservable interest rate that will balance the system. If only we could find it. A state operating its own currency is self financing. [0] Russia is like China. They are technically lending to us, and it doesn’t matter. Nor does it matter to them if we delete that debt as they use the rouble [1] [0] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4890683 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4890683 [1] https://new-wayland.com/blog/why-the-russian-oil-price-cap-wont-work/ https://new-wayland.com/blog/why-the-russian-oil-price-cap-w...
  - lazide 2y ago
    Ah yes - the issue I’m referring to is that Greece w/the Drachma controlled one half of the currency exchange involved in foreign debt. They could inflate or deflate that half they had when they needed to do other things. It wouldn’t always work well, but it existed. With debt denominated in Euros AND a local economy operating on Euros, they control zero halves. So defaulting now screws them out of their grocery money too, and not just out of their lambo money like it did before. The same (pre-Euro) situation is true of all the other examples, including Russia.