Recommend
2 
 Thumb up
 Hide
77 Posts
1 , 2 , 3 , 4  Next »   | 

BoardGameGeek» Forums » Everything Else » Religion, Sex, and Politics

Subject: the main effect of fiat currency (dollars). rss

Your Tags: Add tags
Popular Tags: [View All]
Steve
Thailand
flag msg tools
The US is actually really exactly like a man in a fiction story who finds a bottle/lamp on a beach that contains a Genie who grants him 3 wishes. And his 1st wish is for 1 million more wishes. Now he has an infinite supply of 1 oz. and 1 pound solid gold bars. So, he can never go bankrupt, but he can reduce the value of everyone's gold bars.

The US is exactly the same as this.

1 
 Thumb up
1.00
 tip
 Hide
  • [+] Dice rolls
Moshe Callen
Israel
Jerusalem
flag msg tools
designer
ἄνδρα μοι ἔννεπε, μοῦσα, πολύτροπον, ὃς μάλα πολλὰ/ πλάγχθη, ἐπεὶ Τροίης ἱερὸν πτολίεθρον ἔπερσεν./...
badge
μῆνιν ἄειδε θεὰ Πηληϊάδεω Ἀχιλῆος/ οὐλομένην, ἣ μυρί᾽ Ἀχαιοῖς ἄλγε᾽ ἔθηκε,/...
Avatar
mbmbmbmbmb
The point I previously made and which you dismissed is that fiat currency has value because everyone collectively agrees that it does. So your gold bars analogy, genie or not, breaks down. That is gold standard thinking. Currency of any country can be thought of as tiny investment certificates in whatever country issued them. If therefore people round the world lose faith in a country, namely if they cease to abide by the collective agreement that whatever country's money has value, then that country's money becomes worthless because the fiat is not accepted. So far, that ha only happened to small relatively poor countries.
2 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Vapix
msg tools
mbmbmb
whac3 wrote:
The point I previously made and which you dismissed is that fiat currency has value because everyone collectively agrees that it does. So your gold bars analogy, genie or not, breaks down. That is gold standard thinking. Currency of any country can be thought of as tiny investment certificates in whatever country issued them. If therefore people round the world lose faith in a country, namely if they cease to abide by the collective agreement that whatever country's money has value, then that country's money becomes worthless because the fiat is not accepted. So far, that ha only happened to small relatively poor countries.

IMO the bit that I bolded/underlined is the must useful way to view a fiat currency.

The trust element is also important of course, but that's trust that the government will not be irresponsible and abuse its ability to inflate the currency. So this is about confidence that the currency's value will be reasonably stable relative to the "real" size of the economy that backs it.

I know it's often presented the other way around (that the value comes from collective belief/agreement that the value exists), but IMO this is confusing the (objective) real basis for the value of currency with the (subjective) way individuals perceive it.

IMO the only illusion is that gold has some real value in addition to its use in manufacturing (objective value) and ornamentation (supply and demand - real but also subjective).
3 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Steve
Thailand
flag msg tools
whac3 wrote:
The point I previously made and which you dismissed is that fiat currency has value because everyone collectively agrees that it does. So your gold bars analogy, genie or not, breaks down. That is gold standard thinking. Currency of any country can be thought of as tiny investment certificates in whatever country issued them. If therefore people round the world lose faith in a country, namely if they cease to abide by the collective agreement that whatever country's money has value, then that country's money becomes worthless because the fiat is not accepted. So far, that ha only happened to small relatively poor countries.

Maybe I was distracted by other points and didn't reply to your point. Frankly, I don't remember.

You are thinking mostly about international trade, I think. I'm thinking mostly about what happens inside the borders of a nation.

In a nation as long as taxes are collected in the fiat currency then that currency has value in the nation.

In an earlier post I tried to explain that if the value of the US dollar fell internationally then the US would have to become more self sufficient in everything. Imported goods would cost more, this includes oil and gas. OTOH exported US made goods could be sold for less over there. Neither of these is the end of America. America would have to get used to making more stuff instead of importing everything. Is this a bad thing?

The dollar is a complete fiat currency. Not only is it not backed by gold or silver, but it is also allowed to float against all other currencies. It is not pegged to anything.

And if the man had his Genie make a million tons of gold it would depress the value of gold just like if the US creates $6T cash dollars it would reduce the value of the dollar in international trade. It is the same.

 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Steve
Thailand
flag msg tools
Moshe, can you agree that this modified statement is true?

"The US Gov. can always change a few laws and then just create new dollars to pay any bill/obligation presented to it, but there may be other bad effects if this is done too much."

If you can't and/or can't explain why the US can't create dollars to pay bills, then you are a scientist who can't accept reality.

 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Moshe Callen
Israel
Jerusalem
flag msg tools
designer
ἄνδρα μοι ἔννεπε, μοῦσα, πολύτροπον, ὃς μάλα πολλὰ/ πλάγχθη, ἐπεὶ Τροίης ἱερὸν πτολίεθρον ἔπερσεν./...
badge
μῆνιν ἄειδε θεὰ Πηληϊάδεω Ἀχιλῆος/ οὐλομένην, ἣ μυρί᾽ Ἀχαιοῖς ἄλγε᾽ ἔθηκε,/...
Avatar
mbmbmbmbmb
Steve1501 wrote:
Moshe, can you agree that this modified statement is true?

"The US Gov. can always change a few laws and then just create new dollars to pay any bill/obligation presented to it, but there may be other bad effects if this is done too much."

If you can't and/or can't explain why the US can't create dollars to pay bills, then you are a scientist who can't accept reality.


Yes and no. The no part is that the other people, especially non-Americans, have to be willing to go along with it.
 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Steve
Thailand
flag msg tools
whac3 wrote:
Steve1501 wrote:
Moshe, can you agree that this modified statement is true?

"The US Gov. can always change a few laws and then just create new dollars to pay any bill/obligation presented to it, but there may be other bad effects if this is done too much."

If you can't and/or can't explain why the US can't create dollars to pay bills, then you are a scientist who can't accept reality.


Yes and no. The no part is that the other people, especially non-Americans, have to be willing to go along with it.

I disagree, I do not think that a person with a bond or an invoice gets to say where the dollars the US Gov. is offering to settle that bond or invoice came from. They can come from taxes or bond sales now, this just adds newly created dollars. And how would the guy with the bond know which was which? Would the bond holder really rather have the bond that the dollars? Dollars are much easier to spend.

If you are thinking about other effects they are covered in the part after the "but". I think I covered all the bases. I didn't say the bad effects would be large or small.
 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Chad Ellis
United States
Brookline
Massachusetts
flag msg tools
designer
publisher
badge
Avatar
mbmbmbmbmb
The reason nations and people have confidence in the dollar is in part that it is very much in the interests of the United States to maintain that confidence.

Apply some game theory to your analogy of the guy who can make infinite gold bars. What happens if he does it? They become worthless. What happens if everyone believes he's just going to make infinite? Gold becomes worthless (or at least falls sharply in value). What happens if he makes enough to make himself rich but also convinces the rest of the world that he's not going to make enough additional gold to throw off the balance? Then he's rich.

The US could flood the world with dollars (solving its debt problem along the way) but the result would be disaster. Hyperinflation, higher future borrowing costs, loss of world influence, etc., if not outright war or other forms of explicit retaliation. It's like if we're both in a room and I have a bomb. If I'm a rational person, the fact that I can blow up the room shouldn't scare you too much. (Please ignore the fact that rational people don't generally wander around carrying bombs...)
6 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Moshe Callen
Israel
Jerusalem
flag msg tools
designer
ἄνδρα μοι ἔννεπε, μοῦσα, πολύτροπον, ὃς μάλα πολλὰ/ πλάγχθη, ἐπεὶ Τροίης ἱερὸν πτολίεθρον ἔπερσεν./...
badge
μῆνιν ἄειδε θεὰ Πηληϊάδεω Ἀχιλῆος/ οὐλομένην, ἣ μυρί᾽ Ἀχαιοῖς ἄλγε᾽ ἔθηκε,/...
Avatar
mbmbmbmbmb
Steve1501 wrote:
whac3 wrote:
Steve1501 wrote:
Moshe, can you agree that this modified statement is true?

"The US Gov. can always change a few laws and then just create new dollars to pay any bill/obligation presented to it, but there may be other bad effects if this is done too much."

If you can't and/or can't explain why the US can't create dollars to pay bills, then you are a scientist who can't accept reality.


Yes and no. The no part is that the other people, especially non-Americans, have to be willing to go along with it.

I disagree, I do not think that a person with a bond or an invoice gets to say where the dollars the US Gov. is offering to settle that bond or invoice came from.…

I'm talking about collective agreement, not individual.
 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Steve
Thailand
flag msg tools
Can you please be more specific?
The US Gov. is on 1 side.
And the other side is whom?
 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Erik Henry
United States
Houston
Texas
flag msg tools
badge
Avatar
mbmbmb
Chad_Ellis wrote:
The reason nations and people have confidence in the dollar is in part that it is very much in the interests of the United States to maintain that confidence.

Apply some game theory to your analogy of the guy who can make infinite gold bars. What happens if he does it? They whistlebecome worthless. What happens if everyone believes he's just going to make infinite? Gold becomes worthless (or at least falls sharply in value). What happens if he makes enough to make himself rich but also convinces the rest of the world that he's not going to make enough additional gold to throw off the balance? Then he's rich.

The US could flood the world with dollars (solving its debt problem along the way) but the result would be disaster. Hyperinflation, higher future borrowing costs, loss of world influence, etc., if not outright war or other forms of explicit retaliation. It's like if we're both in a room and I have a bomb. If I'm a rational person, the fact that I can blow up the room shouldn't scare you too much. (Please ignore the fact that rational people don't generally wander around carrying bombs...)

And our two-party candidate-nomination system, our educated electorate, and our Electoral College ensure that it is impossible for us ever to elect someone stupid, reckless, and evil enough to set off that bomb.

Nope, that could never happen. whistle
 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Moshe Callen
Israel
Jerusalem
flag msg tools
designer
ἄνδρα μοι ἔννεπε, μοῦσα, πολύτροπον, ὃς μάλα πολλὰ/ πλάγχθη, ἐπεὶ Τροίης ἱερὸν πτολίεθρον ἔπερσεν./...
badge
μῆνιν ἄειδε θεὰ Πηληϊάδεω Ἀχιλῆος/ οὐλομένην, ἣ μυρί᾽ Ἀχαιοῖς ἄλγε᾽ ἔθηκε,/...
Avatar
mbmbmbmbmb
Steve1501 wrote:
Can you please be more specific?
The US Gov. is on 1 side.
And the other side is whom?

worldwide gov'ts and financial institutions
 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Steve
Thailand
flag msg tools
Chad_Ellis wrote:
The reason nations and people have confidence in the dollar is in part that it is very much in the interests of the United States to maintain that confidence.

Apply some game theory to your analogy of the guy who can make infinite gold bars. What happens if he does it? They become worthless. What happens if everyone believes he's just going to make infinite? Gold becomes worthless (or at least falls sharply in value). What happens if he makes enough to make himself rich but also convinces the rest of the world that he's not going to make enough additional gold to throw off the balance? Then he's rich.

The US could flood the world with dollars (solving its debt problem along the way) but the result would be disaster. Hyperinflation, higher future borrowing costs, loss of world influence, etc., if not outright war or other forms of explicit retaliation. It's like if we're both in a room and I have a bomb. If I'm a rational person, the fact that I can blow up the room shouldn't scare you too much. (Please ignore the fact that rational people don't generally wander around carrying bombs...)

Neither I non MMT proponents have ever said you are wrong. We have always said that the US Gov. has to be reasonable about it.

For 1 thing it can't stop collecting a lot of taxes because if there are no taxes then the fiat dollar is as worthless as the Continental dollars of 1780. The Continental Congress could issue them and pay the troops with them, but since it had no taxing power there was no reason for anyone to take them at even close to par.

For another thing the UD Gov. has to frugal about using this power.

But, you seem to agree that my analogy is correct. They are exactly the same thing. For example, if the guy makes too much gold he will depress the market, just like too many dollars will depress the market for dollars. The only difference is in how soon each takes effect and how much it changes the market.

The 3 main points are:
1] The US can if it has to just pay any Bond, etc., with newly created dollars so it can't ever be bankrupt. Can't happen.
2] Because of this it can avoid high interest rates when it wants to.
3] Because of #1 & #2, there is no reason to try to pay down the national debt. Especially when you realize that running a surplus destroys Bonds and therefore the savings of someone. And why try to do that?

 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Steve
Thailand
flag msg tools
whac3 wrote:
Steve1501 wrote:
Can you please be more specific?
The US Gov. is on 1 side.
And the other side is whom?

worldwide gov'ts and financial institutions

OK.

They already like have $4T in Bonds. What will they do with them?
Are they doing to stop selling us stuff.
The US is almost a net exporter of oil. The US can make its own stuff.
A trade war will hurt them as much or more than it hurts us.
Why would they be proactively stupid ? Why wouldn't they wait until the US got carried away with "printing" $$. Then if the US didn't get carried away why would they start a trade war?
Could they keep a solid front?

Neither you nor I are knowledgeable enough to answer those questions.

 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Walt
United States
Orange County
California
flag msg tools
Before terraforming Mars, Surviving Mars is required: Paradox Interactive; Steam.
badge
Please contact me about board gaming in Orange County.
Avatar
mbmbmbmbmb
This is getting way too simplistic. The USG isn't the only one who creates money: banks and even individuals do, too. They also can destroy money.

In the 2008 financial crisis, banks stopped lending because the failures in regulation and rating firms left them unable to evaluate loans. Every loan creates money, but none were being created; as a result, the money supply contracted and US Treasury bonds sold for under 1%.

By contrast, in the 1980s, after multiple oil shocks and with low confidence in the financial markets, US interest rates were around 20%.

But it's not the USG vs. anyone in particular. The USG influences but does not control the process. (No government has even totally controlled the money supply--if it tries, a black money market arises, often involving things of actual value like food or military power.) Money moves and values are set by individual decisions. In 2008, it was a flight to perceived safety in US Treasuries.

Constantly over decades, money has flowed into the US from countries that just might nationalize industries or currencies--like China. Balance of payments? A nearly worthless measure because of that flow.

It's a chaotic, free market, and the value of money is just another commodity. The USG is a big player, but it's not a puppetmaster. If we create too much or too little money, the market will correct the value of the dollar just like any other commodity.
5 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Moshe Callen
Israel
Jerusalem
flag msg tools
designer
ἄνδρα μοι ἔννεπε, μοῦσα, πολύτροπον, ὃς μάλα πολλὰ/ πλάγχθη, ἐπεὶ Τροίης ἱερὸν πτολίεθρον ἔπερσεν./...
badge
μῆνιν ἄειδε θεὰ Πηληϊάδεω Ἀχιλῆος/ οὐλομένην, ἣ μυρί᾽ Ἀχαιοῖς ἄλγε᾽ ἔθηκε,/...
Avatar
mbmbmbmbmb
Bonds are inherently paper.
 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Chad Ellis
United States
Brookline
Massachusetts
flag msg tools
designer
publisher
badge
Avatar
mbmbmbmbmb
Steve1501 wrote:

1] The US can if it has to just pay any Bond, etc., with newly created dollars so it can't ever be bankrupt. Can't happen.


Yes and no. If the US destroyed the value of the dollar then it would not be able to borrow in dollars or buy in dollars. Thus, while it's true that we can't go bankrupt solely from existing dollar liabilities we could still find ourselves in great financial distress and eventually real bankruptcy.

2] Because of this it can avoid high interest rates when it wants to.

No. Keeping interest rates low is dependent on, among other things, our ability to pay our bills without flooding the market.

For both these points, just look at countries that are unable to borrow at low interest rates in their own fiat currencies.

Quote:
3] Because of #1 & #2, there is no reason to try to pay down the national debt. Especially when you realize that running a surplus destroys Bonds and therefore the savings of someone. And why try to do that?


Since point one is only partially correct and point two is wrong, your conclusion doesn't follow. Nor, I think, can you just assert that running a surplus destroys bonds. For example, did bonds get destroyed during the late 90s and early 2000s?
2 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Moshe Callen
Israel
Jerusalem
flag msg tools
designer
ἄνδρα μοι ἔννεπε, μοῦσα, πολύτροπον, ὃς μάλα πολλὰ/ πλάγχθη, ἐπεὶ Τροίης ἱερὸν πτολίεθρον ἔπερσεν./...
badge
μῆνιν ἄειδε θεὰ Πηληϊάδεω Ἀχιλῆος/ οὐλομένην, ἣ μυρί᾽ Ἀχαιοῖς ἄλγε᾽ ἔθηκε,/...
Avatar
mbmbmbmbmb
Chad;

For the record, I've never made any such assertion.
 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Steve
Thailand
flag msg tools
Chad_Ellis wrote:
Steve1501 wrote:

1] The US can if it has to just pay any Bond, etc., with newly created dollars so it can't ever be bankrupt. Can't happen.


Yes and no. If the US destroyed the value of the dollar then it would not be able to borrow in dollars or buy in dollars. Thus, while it's true that we can't go bankrupt solely from existing dollar liabilities we could still find ourselves in great financial distress and eventually real bankruptcy.

Quote:
2] Because of this it can avoid high interest rates when it wants to.

No. Keeping interest rates low is dependent on, among other things, our ability to pay our bills without flooding the market.

For both these points, just look at countries that are unable to borrow at low interest rates in their own fiat currencies.

Quote:
3] Because of #1 & #2, there is no reason to try to pay down the national debt. Especially when you realize that running a surplus destroys Bonds and therefore the savings of someone. And why try to do that?


Since point one is only partially correct and point two is wrong, your conclusion doesn't follow. Nor, I think, can you just assert that running a surplus destroys bonds. For example, did bonds get destroyed during the late 90s and early 2000s?

I can't convince you. The Econ. Prof. who propound MMT are my source.

#1 MMTers assume that the US would be smart enough to not "destroy the values of the dollar" because that would be as stupid as not paying because we have reached the 'debt ceiling'. You assume that the US Congress is stupid and they control the purse strings.

#2 MMTers say that if the Gov. and Fed. work together and use the MMT theory then they can control the interest rate that they pay. It is their claim. Argue with them not me.

#3 After I explained where you were wrong about #1 & #2 I can again make the #3 claim. There is no reason to try to pay down the debt.
. . If the US ran a surplus in the last Clinton years how could it not have reduced the debt? Maybe it was just bookkeeping tricks and not really a surplus. If the goal is to pay down the debt then there can't be tricks and Bonds must be destroyed and that reduces savings in the Private Sector or the Foreign sector. [The other sector being the Public sector. And the deficits/surpluses of these 3 must add up to zero.]

 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Oliver Dienz
United States
Shelburne
Vermont
flag msg tools
mbmbmbmbmb
Chad_Ellis wrote:
Steve1501 wrote:

1] The US can if it has to just pay any Bond, etc., with newly created dollars so it can't ever be bankrupt. Can't happen.


Yes and no. If the US destroyed the value of the dollar then it would not be able to borrow in dollars or buy in dollars. Thus, while it's true that we can't go bankrupt solely from existing dollar liabilities we could still find ourselves in great financial distress and eventually real bankruptcy.

The US may find itself under inflationary pressure if the economy cannot provide all the goods and services the government and the private sector want to purchase. However, the US government cannot become insolvent in its own currency. Hence, the US cannot go bankrupt due to its internal debt.

Quote:
2] Because of this it can avoid high interest rates when it wants to.

No. Keeping interest rates low is dependent on, among other things, our ability to pay our bills without flooding the market.

That same goal could be reached by changing the amount of taxes collected. Once inflation becomes an issue the government can increase taxes to reduce the disposable income of the private sector and thereby keep the price level stable.

Quote:
For both these points, just look at countries that are unable to borrow at low interest rates in their own fiat currencies.

Which are those? How much control do they have over their central bank? How do they manage their government spending? What's their trade balance?

Quote:
Quote:
3] Because of #1 & #2, there is no reason to try to pay down the national debt. Especially when you realize that running a surplus destroys Bonds and therefore the savings of someone. And why try to do that?


Since point one is only partially correct and point two is wrong, your conclusion doesn't follow. Nor, I think, can you just assert that running a surplus destroys bonds. For example, did bonds get destroyed during the late 90s and early 2000s?

A surplus reduces the outstanding treasury liabilities. So, yes, bonds get destroyed in that case.
1 
 Thumb up
0.05
 tip
 Hide
  • [+] Dice rolls
Steve
Thailand
flag msg tools
Thank you, Oliver.

 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Chad Ellis
United States
Brookline
Massachusetts
flag msg tools
designer
publisher
badge
Avatar
mbmbmbmbmb
whac3 wrote:
Chad;

For the record, I've never made any such assertion.


I was replying to Steve.
1 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Chad Ellis
United States
Brookline
Massachusetts
flag msg tools
designer
publisher
badge
Avatar
mbmbmbmbmb
Steve1501 wrote:
#1 MMTers assume that the US would be smart enough to not "destroy the values of the dollar" because that would be as stupid as not paying because we have reached the 'debt ceiling'. You assume that the US Congress is stupid and they control the purse strings.


I haven't assumed that in the slightest. I've argued the opposite. My point is precisely that the need to maintain the value of the dollar is a constraint on their practical ability to print as much money as they want.

Quote:
#2 MMTers say that if the Gov. and Fed. work together and use the MMT theory then they can control the interest rate that they pay. It is their claim. Argue with them not me.


They aren't posting here -- and "These professors say their theory is right" is as blatant an argument from authority as one could make. In any case, there is a wide gap between saying that by carefully applying a particular economic approach the Fed could control interest rates and saying that the US can avoid high interest rates because its ability to print money means it can't go bankrupt.

Quote:
#3 After I explained where you were wrong about #1 & #2 I can again make the #3 claim. There is no reason to try to pay down the debt.
. . If the US ran a surplus in the last Clinton years how could it not have reduced the debt? Maybe it was just bookkeeping tricks and not really a surplus. If the goal is to pay down the debt then there can't be tricks and Bonds must be destroyed and that reduces savings in the Private Sector or the Foreign sector. [The other sector being the Public sector. And the deficits/surpluses of these 3 must add up to zero.]



You haven't explained why I'm wrong. You've just stated it and made an argument from authority.

Paying down debt doesn't reduce savings, any more than a company buying back stock. Suppose you have $1000 in savings and decide to invest it in a 5-year Treasury Bond. Now imagine that the government is running a surplus, and so when your Bond pays out they don't replace it with as much debt. Does this mean that your savings is destroyed? Of course not. You can invest it in equities, in corporate debt, in a money market account, in a house, etc.
3 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Chad Ellis
United States
Brookline
Massachusetts
flag msg tools
designer
publisher
badge
Avatar
mbmbmbmbmb
odie73 wrote:
Chad_Ellis wrote:
Steve1501 wrote:

1] The US can if it has to just pay any Bond, etc., with newly created dollars so it can't ever be bankrupt. Can't happen.


Yes and no. If the US destroyed the value of the dollar then it would not be able to borrow in dollars or buy in dollars. Thus, while it's true that we can't go bankrupt solely from existing dollar liabilities we could still find ourselves in great financial distress and eventually real bankruptcy.

The US may find itself under inflationary pressure if the economy cannot provide all the goods and services the government and the private sector want to purchase. However, the US government cannot become insolvent in its own currency. Hence, the US cannot go bankrupt due to its internal debt.


That's exactly what I said. The "eventually real bankruptcy" could arise if we devalued the dollar to an extent that we could no longer borrow in it. This is something that has happened to many other countries.

Quote:
Quote:
2] Because of this it can avoid high interest rates when it wants to.

No. Keeping interest rates low is dependent on, among other things, our ability to pay our bills without flooding the market.

That same goal could be reached by changing the amount of taxes collected. Once inflation becomes an issue the government can increase taxes to reduce the disposable income of the private sector and thereby keep the price level stable.


I was addressing a specific claim that the government can avoid high interest rates if it wants to "because of this" where "this" is the ability to print more money. The world is full of counter-examples.

Quote:
Quote:
For both these points, just look at countries that are unable to borrow at low interest rates in their own fiat currencies.

Which are those? How much control do they have over their central bank? How do they manage their government spending? What's their trade balance?


I'm not sure what your point or question is. Many second and third world countries can only issue debt in their own currency at high interest rates because investors aren't confident about the future value of those currencies. Again, I'm not saying that the US is facing this -- I'm addressing the specific claim that because we can print unlimited US money and can't go bankrupt from dollar debt we can keep interest rates low.

Quote:

A surplus reduces the outstanding treasury liabilities. So, yes, bonds get destroyed in that case.


I mangled my words here. Technically, bonds aren't necessarily destroyed; they can simply not be replaced. (And they can only be destroyed by buying them from the owners.) But the point I was objecting to is the claim that destroying or not replacing bonds destroys savings.
1 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Oliver Dienz
United States
Shelburne
Vermont
flag msg tools
mbmbmbmbmb
Chad_Ellis wrote:

Paying down debt doesn't reduce savings, any more than a company buying back stock. Suppose you have $1000 in savings and decide to invest it in a 5-year Treasury Bond. Now imagine that the government is running a surplus, and so when your Bond pays out they don't replace it with as much debt. Does this mean that your savings is destroyed?


In order to pay back that bond the government would tax you the $1000 first (which it needs to get to a surplus). It will then give you the $1000 back in exchange for the T-bond. So instead of having $1000 and a T-bond worth $1000 for a total of $2000 in savings you will then have only $1000.

See also:
http://www.businessinsider.com/the-growing-government-defici...
http://heteconomist.com/budget-deficits-and-net-private-savi...
https://en.wikipedia.org/wiki/Sectoral_balances

If you really want to dig into it: https://pdfs.semanticscholar.org/2e74/7a5a488c312f942979cd93...
 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
1 , 2 , 3 , 4  Next »   | 
Front Page | Welcome | Contact | Privacy Policy | Terms of Service | Advertise | Support BGG | Feeds RSS
Geekdo, BoardGameGeek, the Geekdo logo, and the BoardGameGeek logo are trademarks of BoardGameGeek, LLC.