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0 pointsSilasX12y ago0 comments

>If your government owes IOU's that it can print itself (fiat currency), it can never default on those IOU's.

People like to repeat this as if it's somehow insightful and helpful to the discussion, but it's vacuous. Yes, you can always just print away debts denominated in a currency you control. That says nothing about how much you fuck up the economy by doing so. That's why some countries that could print their way out of debt (Russia '98) default anyway, because even a default might not be as bad as (the risk of) triggering complete collapse of the currency.

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kaonashi12y ago

Saying you have to 'keep printing money' to cover debts is meaningless. All money is printed (or keystroked) into existence. Governments impose a tax burden payable only in the state's currency (so that people are forced to offer their output for sale in that currency), then they provide that currency.

The way to be fiscally responsible with your currency is to print enough so that everyone has a job, but so much that you're overrunning your output capacity and increasing inflation. Keep interest rates on bonds (if you choose to issue them) lower than your GDP growth (and since you're the monopoly issuer of your currency, you have control over interest rates) and you won't have issues with expanding debt % [1].

The first response to this is usually "well, Greece" or "well, Zimbabwe". The crucial difference in those countries was that what they owed was not their own currency, but foreign currencies.

[1] http://www.cfeps.org/pubs/wp-pdf/WP53-Fullwiler.pdf

SilasXOP12y ago

So how does that contradict what I said?

kaonashi12y ago

> That says nothing about how much you fuck up the economy by doing so.

It says a great deal about the possible effects of deficit spending.

If you owe a foreign currency and have a catastrophic decrease in output, you're going to have problems.

If your debts are denominated in your own currency and have stable output, then increasing net financial assets to the private sector can prop up aggregate demand to keep the economy operating at full employment.

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0 pointsSilasX12y ago0 comments

>If your government owes IOU's that it can print itself (fiat currency), it can never default on those IOU's.

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kaonashi12y ago

The first response to this is usually "well, Greece" or "well, Zimbabwe". The crucial difference in those countries was that what they owed was not their own currency, but foreign currencies.

[1] http://www.cfeps.org/pubs/wp-pdf/WP53-Fullwiler.pdf

SilasXOP12y ago

So how does that contradict what I said?

kaonashi12y ago

> That says nothing about how much you fuck up the economy by doing so.

It says a great deal about the possible effects of deficit spending.

If you owe a foreign currency and have a catastrophic decrease in output, you're going to have problems.

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