National debt (in that nations own currency) is not comparable to debt held by a person or a business. People and businesses can run out of money. The US government can not run out of US dollars.
Even if national debt were comparable (and it’s not). It is common for regular people to enter into debt multiple times their yearly income, for example to buy a house or for student loans. This is generally considered much more risky than safe government debt, as reflected in the much lower yields on government bonds. By this comparison, the USA is not particularly deep in debt at all. Again, this is an exercise in futility since the US government can’t run out of its own currency and the comparison is meaningless to begin with.
To be clear I’m not saying the US economy is working well whatsoever. It’s working just fantastic for a rather small group of people, and working rather awfully for the rest of the entire world. But national debt as a way to measure economic success is even dumber than using GDP, so please leave that metric to the neoliberal dumbasses peddling it.
You’re sort of right, but with some very big and very serious caveats that kind of break your argument.
The first is that while 40tn is not a particularly troublesome number in a vacuum - it’s about 125% of GDP, a little higher than France, a little lower than Italy (Japan is at well over 200%) - the issue is not the total number, but the rate of increase. Of that 40 trillion, half of that was accrued in the last 9 years. 10 trillion was added in just the last 3 years. So, much as with climate change, it’s the rate of increase in the rate of increase that has people panicking.
Especially because this car is accelerating at an ever increasing pace right at the moment when the brakes are in dire need of servicing. US government spending has been cut to the bone, and yet they’re still piling on debt at very rapidly accelerating rates. The only things left to cut are sacred cows. The only other option is raising taxes which no one has any political appetite for. So the people watching this rapidly growing debt pile are increasingly concerned that the US will not have the ability to service this debt. That erodes confidence, which raises borrowing rates, which further reduces the ability to service the debt in a vicious cycle.
Now, you’re correct when you say that, in theory, the government can simply issue more dollars. But there are a few problems with that. The first is that the reason this debt exists is because the government does generally not pay its bills by issuing dollars. Instead it issues bonds, which private investors, institutions and nations buy. This is the process by which those groups lend the government money (you’re familiar, I’m sure, but I’m laying out the details for anyone else following along). If those groups lose confidence that the US will repay those debts, they won’t buy bonds (eg, won’t lend), which can create a situation like what is happening in Russia right now where the government literally cannot raise money because their bond sales are failing.
Which leaves the government with its only option being to print money. Now while this is fine in theory (we’ll get to the MMT stuff in a moment), there is an unavoidable risk; if you issue more dollars, you are inherently reducing the value of dollars already in circulation. At a small enough scale, this is fine. But if the US ends up in a position where it’s needing to issue, say, a trillion new dollars every year just to service it’s running costs and its existing debts, that can quickly spiral out of control. Yields spike, bond sales collapse, the government gets effectively shut out of the ability to borrow money and is left servicing its running costs purely on new currency printing.
Now, here we come to the MMT approach. For those not familiar, the horrifically simplified, absolutely missing a lot of critical nuance version of MMT (Modern Monetary Theory) is that you can basically look at taxation not as the means by which the government raises money, but rather the means by which it destroys it. This sounds weird but bear with me; every US dollar only exists because the US government prints it (usually via a major bank, but that’s a rabbit hole). There are no other possible sources of US dollars. I can’t just set up a rival press and make my own. So US dollars only exist because they’re printed. When the government takes a dollar in tax, that dollar leaves circulation. It is, in effect, destroyed, because it might as well not exist until the government puts it back into circulation. For a government, the difference between spending a taxed dollar and spending a printed dollar is effectively nothing. Same goes for dollars raised via debt issuance; those dollars leave circulation until the government spends them, putting them back into circulation. Spending and printing are, effectively, analogous.
So MMT argues that the maximum possible supply of any currency is infinite. The purpose of taxation and debt issuance is just to remove money from the currently circulating supply when there’s too much. That part is sort of easy to grok, but it comes with a really, really important caveat; when you over-supply anything, its perceived value goes down. So just because you can spend infinite dollars, doesn’t mean you should. In practice, you have to balance dollars going into the system with dollars going out. And right now the US government is absolutely not doing that.
To put that another way, if you adhere to MMT then you can consider US government debt to be a useful proxy for the total supply of US dollars. Whenever the government takes on debt, that represents dollars flowing into the system (since they’re not exactly sitting in government accounts; you take debt to service spending). So whether you are a traditional economist, or you subscribe to the MMT mindset of functionally infinite accounts, the problem being represented by that high debt figure - and moreso by the rate of its growth - is the same: The government is putting too many dollars into circulation, and not removing enough from circulation. This, sooner or later, tends to lead to rapid devaluation of those dollars. In more normal terms, that means inflation, and potentially hyper-inflation.
It’s also worth noting that the Federal Reserve, who are supposed to be the apolitical and independent stewards of the printing of money (by determining the interest rate the government lends at) have been repeatedly attacked struggling to maintain independence.
They’re independent because their job is to do the government money supply version of deciding what portion of a child’s plate is vegetables. They’re the ones whose job it is to say when you look like you could use a drink and to cut you off and hand you a coffee when you’ve had enough. Keynesian economics requires both sides to be functional, and right now we really need a high interest rate to avoid stagflation.
the government does generally not pay its bills by issuing dollars. Instead it issues bonds, which private investors, institutions and nations buy.
Nope. The government has a list of primary purchasers (In Europe it’s banks, I assume it’s the same in the US). These banks are the only people who cna buy the bonds. The others you mentioned only buy them on the secondary market. Now sure, generally the primary buyers intend to sell to the secondary market. But they don’t need it to turn a profit on the bonds. Every purchase of US bonds can be made with brand new US dollars provided by the Fed. The banks don’t need to be liquid or have secondary buyers lined up. They just become the middle man between the Fed creating new money and the US government spending it.
If you issue more dollars, you are inherently reducing the value of dollars already in circulation.
Nope. This is monetarism, it’s a neoliberal brainworm and has been thoroughly debunked. You are straight up spreading misinformation :( There are so many more factors at play such as, is there full employment, are people saving or spending (or does the money go to people who spend more or save more), are there sufficient resources available to accomodate the spending, etc. As a rule, unless we’re at full employment, government spending only causes inflation in very specific cases, not in general.
Also I can’t stress this enough but most money is created by banks when they loan to the private sector, not by the government.
Regarding your points about inflation, again, you’re broadly correct, and while you’re bringing up important nuance that I didn’t include in my previous comment, it just doesn’t change the overall picture. Yes, inflation is complicated. Yes, there is not a direct correlation between money printing and inflation. It does depend heavily on how that money is spent and where. These are all excellent points and I’m glad you’re raising them. But it’s not “spreading disinformation” to discuss a subject in broad terms. What you’re describing as “monetarism” is just acknowledging the basic fact that MMT is not a license to spend infinite money. As you yourself noted, it very much matters how and where that money is spent. If the US government was accruing it’s current level of debt through careful, thoughtful spending on programs that would serve to build individual wealth, the concerns would be very different. But the reality is that they’re not.
I’m a huge defender of government spending. Austerity is a cancer that needs to be rooted out wherever it arises. I have no compunctions about that. Governments should spend more on behalf of the public. But that doesn’t mean that we simply wave off any concerns whatsoever about budget deficits. Even MMT maintains that taxation is required in order to control the amount of money in circulation. If unlimited spending with no downside were possible under MMT, then why would there be any need for taxes at all?
Government spending is good, but it has to be done right. What’s happening in the US right now is not any form of sane fiscal policy, and it is going to lead to disaster if it continues.
shit okay I was wrong about the primary/secondary market thing. Turns out there’s quite a few countries who do things differently from what I said. I’ll edit my comment, thanks.
The reason I had a little hissy fit at your comment last night is that you absolutely did say some things that are wrong.
Yes, there is not a direct correlation between money printing and inflation
I’m glad we agree on this now but your previous comment was in direct opposition to this.
The other issue is that you still implied that the US would run out of people who buy their bonds, which just doesn’t make sense. Just like how European banks can use bonds as collateral at the ECB, US banks can use the Standing Repo Facility to ensure they remain just as liquid after buying bonds. This doesn’t protect from a scenario where the bond markets break down so bad that nobody, not even those banks, wants to buy bonds anymore, but that scenario is frankly ridiculous. In a world where even US banks (who don’t exist without the US) think the entire US state will fail, the funding for said failed state is the last problem on the list lol
I agree that what the US does both with spending and taxes is pretty bad. But I have to push back when you say that the problem is the deficit itself, cuz it ain’t
A chunk of your argument here basically rests on the idea that a total confidence collapse in the US bond market - something I depicted as an in extremis example of the costs of unchecked issuance - literally cannot happen. First of all, that’s an assumption, not a fact, and I think we just established that it’s better to avoid making too many of those.
Second, regardless of whether that extreme possibility can occur, along the road to getting there you can still end up with a lack of confidence pushing yields higher and higher, which in turn requires ever increasing amounts of currency printing to service those yields, which further pushes yields higher and so on. Even if you’re somehow right that the US bond market can never ever seize up like it has in Russia, you can still end up in a money printing spiral.
Which brings us back to the core question of what possible downsides there are to printing infinite money. Here you have, apparently and bizarrely, presumed that my acknowledgement that the connection between currency issuance and inflation is not simple or direct as an agreement that no connection exists at all. I’m not aware of any theory of economics which supports this assertion.
Under MMT - which appears to be what you’re relying on - taxation is necessary as a deflationary measure, because it is the act of removing currency from circulation. In order for that to be true, it must follow that putting currency into circulation is, to a greater or lesser degree depending on circumstance, an inflationary measure. Otherwise you have a scale that can only ever tip one way.
Shit yeah, great oversimplified summary. MMT is great as a demonstration of how little economics is an actual “science” and finds it’s foundation in perception of value. All these metrics thrown around as if anyone objectively understands how economic systems and government budgets interact/function is so silly. Like yeah, national budgets are important, but it’s not that rigid and we made it up. Also, yeah, we made it up, but that doesn’t mean we can do whatever. lol, economics.
I want to caution against dismissing the entire field of economics as if there’s simply nothing of value there at all.
It’s absolutely true that mainstream economics has a lot of problems right now. There’s a serious and endemic issue with “frictionless cows on an infinite plane”; that is, economists building models that have not been tested against reality and then acting as if those models can predict reality.
But economics is a genuinely important field of study that offers invaluable insights about how the world really works. If we want to make evidence based changes to address the most fundamental injustices in our society, we need the kind of insights that economics can provide. We just need those insights to come in forms that are useful.
If you want to a really good intro to what economics should be, by someone who has a great understanding of all of the problems with what economics too often is, I’d highly recommend the channel Unlearning Economics: https://www.youtube.com/@unlearningeconomics9021. He does a great job of demystifying the field while also criticizing it and applying it.
There’s important work out there being done by economists who are working to challenge traditional assumptions and push the field into being something genuinely valuable and useful. Don’t throw their contributions out with the bathwater.
Yeah, was gonna chime in with this as well. Even the caveats to this I considered bringing up were covered by someone else. Either way, it’s wild to me how even dems are jumping onto the national debt rhetorical train as of late. Like, what’s happening with the hyper-partisanization of the democratic party in America right now? Already weird to treat politics as a team sport, let alone being a fan of any team. Just another step removed from the not-quite-the-point of focus on policy.
They cannot run out of dollars, but interest payments on said debt can wreak havoc on your budget, so there is a limit.
The only reason that the US specifically claims it cannot run out of money is that it is the global trade currency, something China is successfully attacking and Trump is endangering.
National debt (in that nations own currency) is not comparable to debt held by a person or a business. People and businesses can run out of money. The US government can not run out of US dollars.
Even if national debt were comparable (and it’s not). It is common for regular people to enter into debt multiple times their yearly income, for example to buy a house or for student loans. This is generally considered much more risky than safe government debt, as reflected in the much lower yields on government bonds. By this comparison, the USA is not particularly deep in debt at all. Again, this is an exercise in futility since the US government can’t run out of its own currency and the comparison is meaningless to begin with.
To be clear I’m not saying the US economy is working well whatsoever. It’s working just fantastic for a rather small group of people, and working rather awfully for the rest of the entire world. But national debt as a way to measure economic success is even dumber than using GDP, so please leave that metric to the neoliberal dumbasses peddling it.
You’re sort of right, but with some very big and very serious caveats that kind of break your argument.
The first is that while 40tn is not a particularly troublesome number in a vacuum - it’s about 125% of GDP, a little higher than France, a little lower than Italy (Japan is at well over 200%) - the issue is not the total number, but the rate of increase. Of that 40 trillion, half of that was accrued in the last 9 years. 10 trillion was added in just the last 3 years. So, much as with climate change, it’s the rate of increase in the rate of increase that has people panicking.
Especially because this car is accelerating at an ever increasing pace right at the moment when the brakes are in dire need of servicing. US government spending has been cut to the bone, and yet they’re still piling on debt at very rapidly accelerating rates. The only things left to cut are sacred cows. The only other option is raising taxes which no one has any political appetite for. So the people watching this rapidly growing debt pile are increasingly concerned that the US will not have the ability to service this debt. That erodes confidence, which raises borrowing rates, which further reduces the ability to service the debt in a vicious cycle.
Now, you’re correct when you say that, in theory, the government can simply issue more dollars. But there are a few problems with that. The first is that the reason this debt exists is because the government does generally not pay its bills by issuing dollars. Instead it issues bonds, which private investors, institutions and nations buy. This is the process by which those groups lend the government money (you’re familiar, I’m sure, but I’m laying out the details for anyone else following along). If those groups lose confidence that the US will repay those debts, they won’t buy bonds (eg, won’t lend), which can create a situation like what is happening in Russia right now where the government literally cannot raise money because their bond sales are failing.
Which leaves the government with its only option being to print money. Now while this is fine in theory (we’ll get to the MMT stuff in a moment), there is an unavoidable risk; if you issue more dollars, you are inherently reducing the value of dollars already in circulation. At a small enough scale, this is fine. But if the US ends up in a position where it’s needing to issue, say, a trillion new dollars every year just to service it’s running costs and its existing debts, that can quickly spiral out of control. Yields spike, bond sales collapse, the government gets effectively shut out of the ability to borrow money and is left servicing its running costs purely on new currency printing.
Now, here we come to the MMT approach. For those not familiar, the horrifically simplified, absolutely missing a lot of critical nuance version of MMT (Modern Monetary Theory) is that you can basically look at taxation not as the means by which the government raises money, but rather the means by which it destroys it. This sounds weird but bear with me; every US dollar only exists because the US government prints it (usually via a major bank, but that’s a rabbit hole). There are no other possible sources of US dollars. I can’t just set up a rival press and make my own. So US dollars only exist because they’re printed. When the government takes a dollar in tax, that dollar leaves circulation. It is, in effect, destroyed, because it might as well not exist until the government puts it back into circulation. For a government, the difference between spending a taxed dollar and spending a printed dollar is effectively nothing. Same goes for dollars raised via debt issuance; those dollars leave circulation until the government spends them, putting them back into circulation. Spending and printing are, effectively, analogous.
So MMT argues that the maximum possible supply of any currency is infinite. The purpose of taxation and debt issuance is just to remove money from the currently circulating supply when there’s too much. That part is sort of easy to grok, but it comes with a really, really important caveat; when you over-supply anything, its perceived value goes down. So just because you can spend infinite dollars, doesn’t mean you should. In practice, you have to balance dollars going into the system with dollars going out. And right now the US government is absolutely not doing that.
To put that another way, if you adhere to MMT then you can consider US government debt to be a useful proxy for the total supply of US dollars. Whenever the government takes on debt, that represents dollars flowing into the system (since they’re not exactly sitting in government accounts; you take debt to service spending). So whether you are a traditional economist, or you subscribe to the MMT mindset of functionally infinite accounts, the problem being represented by that high debt figure - and moreso by the rate of its growth - is the same: The government is putting too many dollars into circulation, and not removing enough from circulation. This, sooner or later, tends to lead to rapid devaluation of those dollars. In more normal terms, that means inflation, and potentially hyper-inflation.
It’s also worth noting that the Federal Reserve, who are supposed to be the apolitical and independent stewards of the printing of money (by determining the interest rate the government lends at) have been repeatedly attacked struggling to maintain independence.
They’re independent because their job is to do the government money supply version of deciding what portion of a child’s plate is vegetables. They’re the ones whose job it is to say when you look like you could use a drink and to cut you off and hand you a coffee when you’ve had enough. Keynesian economics requires both sides to be functional, and right now we really need a high interest rate to avoid stagflation.
Nope. The government has a list of primary purchasers (In Europe it’s banks, I assume it’s the same in the US). These banks are the only people who cna buy the bonds. The others you mentioned only buy them on the secondary market. Now sure, generally the primary buyers intend to sell to the secondary market. But they don’t need it to turn a profit on the bonds.Every purchase of US bonds can be made with brand new US dollars provided by the Fed. The banks don’t need to be liquid or have secondary buyers lined up. They just become the middle man between the Fed creating new money and the US government spending it.Nope. This is monetarism, it’s a neoliberal brainworm and has been thoroughly debunked. You are straight up spreading misinformation :( There are so many more factors at play such as, is there full employment, are people saving or spending (or does the money go to people who spend more or save more), are there sufficient resources available to accomodate the spending, etc. As a rule, unless we’re at full employment, government spending only causes inflation in very specific cases, not in general.
Also I can’t stress this enough but most money is created by banks when they loan to the private sector, not by the government.
Yes, I literally said this in the comment you replied to.
You might want to try doing a little less assuming there bud. In the US, treasury auctions are open to anyone.
Regarding your points about inflation, again, you’re broadly correct, and while you’re bringing up important nuance that I didn’t include in my previous comment, it just doesn’t change the overall picture. Yes, inflation is complicated. Yes, there is not a direct correlation between money printing and inflation. It does depend heavily on how that money is spent and where. These are all excellent points and I’m glad you’re raising them. But it’s not “spreading disinformation” to discuss a subject in broad terms. What you’re describing as “monetarism” is just acknowledging the basic fact that MMT is not a license to spend infinite money. As you yourself noted, it very much matters how and where that money is spent. If the US government was accruing it’s current level of debt through careful, thoughtful spending on programs that would serve to build individual wealth, the concerns would be very different. But the reality is that they’re not.
I’m a huge defender of government spending. Austerity is a cancer that needs to be rooted out wherever it arises. I have no compunctions about that. Governments should spend more on behalf of the public. But that doesn’t mean that we simply wave off any concerns whatsoever about budget deficits. Even MMT maintains that taxation is required in order to control the amount of money in circulation. If unlimited spending with no downside were possible under MMT, then why would there be any need for taxes at all?
Government spending is good, but it has to be done right. What’s happening in the US right now is not any form of sane fiscal policy, and it is going to lead to disaster if it continues.
shit okay I was wrong about the primary/secondary market thing. Turns out there’s quite a few countries who do things differently from what I said. I’ll edit my comment, thanks.
The reason I had a little hissy fit at your comment last night is that you absolutely did say some things that are wrong.
I’m glad we agree on this now but your previous comment was in direct opposition to this.
The other issue is that you still implied that the US would run out of people who buy their bonds, which just doesn’t make sense. Just like how European banks can use bonds as collateral at the ECB, US banks can use the Standing Repo Facility to ensure they remain just as liquid after buying bonds. This doesn’t protect from a scenario where the bond markets break down so bad that nobody, not even those banks, wants to buy bonds anymore, but that scenario is frankly ridiculous. In a world where even US banks (who don’t exist without the US) think the entire US state will fail, the funding for said failed state is the last problem on the list lol
I agree that what the US does both with spending and taxes is pretty bad. But I have to push back when you say that the problem is the deficit itself, cuz it ain’t
A chunk of your argument here basically rests on the idea that a total confidence collapse in the US bond market - something I depicted as an in extremis example of the costs of unchecked issuance - literally cannot happen. First of all, that’s an assumption, not a fact, and I think we just established that it’s better to avoid making too many of those.
Second, regardless of whether that extreme possibility can occur, along the road to getting there you can still end up with a lack of confidence pushing yields higher and higher, which in turn requires ever increasing amounts of currency printing to service those yields, which further pushes yields higher and so on. Even if you’re somehow right that the US bond market can never ever seize up like it has in Russia, you can still end up in a money printing spiral.
Which brings us back to the core question of what possible downsides there are to printing infinite money. Here you have, apparently and bizarrely, presumed that my acknowledgement that the connection between currency issuance and inflation is not simple or direct as an agreement that no connection exists at all. I’m not aware of any theory of economics which supports this assertion.
Under MMT - which appears to be what you’re relying on - taxation is necessary as a deflationary measure, because it is the act of removing currency from circulation. In order for that to be true, it must follow that putting currency into circulation is, to a greater or lesser degree depending on circumstance, an inflationary measure. Otherwise you have a scale that can only ever tip one way.
Shit yeah, great oversimplified summary. MMT is great as a demonstration of how little economics is an actual “science” and finds it’s foundation in perception of value. All these metrics thrown around as if anyone objectively understands how economic systems and government budgets interact/function is so silly. Like yeah, national budgets are important, but it’s not that rigid and we made it up. Also, yeah, we made it up, but that doesn’t mean we can do whatever. lol, economics.
I want to caution against dismissing the entire field of economics as if there’s simply nothing of value there at all.
It’s absolutely true that mainstream economics has a lot of problems right now. There’s a serious and endemic issue with “frictionless cows on an infinite plane”; that is, economists building models that have not been tested against reality and then acting as if those models can predict reality.
But economics is a genuinely important field of study that offers invaluable insights about how the world really works. If we want to make evidence based changes to address the most fundamental injustices in our society, we need the kind of insights that economics can provide. We just need those insights to come in forms that are useful.
If you want to a really good intro to what economics should be, by someone who has a great understanding of all of the problems with what economics too often is, I’d highly recommend the channel Unlearning Economics: https://www.youtube.com/@unlearningeconomics9021. He does a great job of demystifying the field while also criticizing it and applying it.
There’s important work out there being done by economists who are working to challenge traditional assumptions and push the field into being something genuinely valuable and useful. Don’t throw their contributions out with the bathwater.
Enjoy your $5000
Don’t spend it all once !
2 slices of bread please
Yeah, was gonna chime in with this as well. Even the caveats to this I considered bringing up were covered by someone else. Either way, it’s wild to me how even dems are jumping onto the national debt rhetorical train as of late. Like, what’s happening with the hyper-partisanization of the democratic party in America right now? Already weird to treat politics as a team sport, let alone being a fan of any team. Just another step removed from the not-quite-the-point of focus on policy.
They cannot run out of dollars, but interest payments on said debt can wreak havoc on your budget, so there is a limit.
The only reason that the US specifically claims it cannot run out of money is that it is the global trade currency, something China is successfully attacking and Trump is endangering.