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Edited by Mrph1 on Nov 30th 2023 at 11:03:59 AM
Sovereign debt economics, the Cliff Notes version:
The role of money
- Money is subject to supply and demand economics just like goods and services are.
- The value of money is in what you can buy with it, full stop.
- The US is a fiat currency issuer. Its money is not backed by gold or any other physical thing, but is based on trust in the currency itself.
- The US government guarantees the value of the dollar through two mechanisms:
- It requires payment of taxes in dollars, creating a baseline demand.
- It creates an environment, through military strength, regulation, criminal justice, insurance, etc., in which people trust that the value of their dollars will remain reasonably stable over time.
Savings and spending
- When an economic agent is in surplus, its income exceeds its spending: it pays down its debt or increases its savings. When it is in deficit, its spending exceeds its income: it withdraws from savings or increases its debt.
- All economic jurisdictions have three sectors: public, private, and trade. Private is the consumer economy. Public is government spending. Trade is the exchange of products and money with other entities. These add together to make GDP.
- Each of these sectors can be in surplus or deficit. By definition, the net deficit/surplus of these three components mathematically sums to zero for any sovereign entity.
- Consumers, businesses, states within a fiscal union (like Florida or Spain), etc. are "balance-sheet constrained". That is, if they run out of money, they have to go get some more, either by earning it or borrowing it. They can't just conjure it out of thin air.
- Sovereign economic agents (fiat currency issuers like the U.S. federal government, the Canadian federal government, the Eurozone — sort of) are not balance-sheet constrained. They can issue any amount of money needed to cover their spending.
The role of debt
- Debt is taken on by a sovereign issuer because it prevents the inflation that would be the result of unrestricted money creation when they run deficits. While the amount of debt increases, the total amount of money in the economy remains the same.
- Debt also provides an investment vehicle for savings. If the government is in deficit, then by the axiom above, either the private or trade sectors are in surplus: there's more money coming in than is being spent, so people buy government debt as a place to save it.
- A sovereign currency issuer can never "go bankrupt" by definition, as long as its currency has any value at all.
- The worst case scenario is for service on its debt to exceed its income, so that it must create money to pay that debt. This can cause a hyperinflationary cycle.
- Currently, the US spends 7.8 percent of its total budget on interest
. By linear math, the debt would have to be 13 times larger before the above scenario could happen, although it'd run into problems before that.
- Currently, the US spends 7.8 percent of its total budget on interest
- The U.S. does not have the highest debt-to-GDP ratio in the world, by far. Per Wikipedia
, the most indebted nation in the world is Japan, at 234% of GDP. Japan is not in a hyperinflationary crisis; in fact, it is desperately struggling against deflation due to a shrinking workforce. The U.S. is in a similar, though not as acute, position.
Debt myths
- Public debt is not "borrowing against our future". For every dollar owed in debt, a private (or public) asset exists. The net balance of the U.S.'s debt position is exactly zero... plus or minus a very small amount based on the difference between current, past, and future interest rates.
- China does not "own all our debt". About $6 trillion, or 28 percent, is held by foreign nations. Federal agencies themselves hold nearly the same amount, $5.8 trillion. The Federal Reserve and state and local governments hold $3.4 trillion. The rest is held by the private sector.
- The net U.S. international investment position is very close to zero. We buy a lot of currency from other nations, just as they buy ours. We owe more than we hold, but we collect more in interest because other nations pay more, so it's basically a wash. Another way of putting it is that other countries owe us almost as much as we owe them.
- If the value of the dollar falls on international markets, it wouldn't affect our economy too badly. We'd pay more for imports, but our exports would get cheaper and our trade deficit would decrease. People would buy more US products and we'd buy less of theirs.
- If China "calls in our debt" — which they can't, because it all has fixed maturity dates — they'd cause a crash in the value of the dollar, destroying their own economy which is highly leveraged against that value. They'd also destroy their trade position with us. You know the old saying: if you owe the bank $100, the bank owns you. If you owe the bank $10 million, you own the bank. That applies in full to China.
edited 27th Apr '18 11:23:22 AM by Fighteer
"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"![]()
The role of money
- Money is subject to supply and demand economics just like goods and services are.
- The value of money is in what you can buy with it, full stop.
- The US is a fiat currency issuer. Its money is not backed by gold or any other physical thing, but is based on trust in the currency itself.
- The US government guarantees the value of the dollar through two mechanisms:
- It requires payment of taxes in dollars, creating a baseline demand.
- It creates an environment, through military strength, regulation, criminal justice, insurance, etc., in which people trust that the value of their dollars will remain reasonably stable over time.
Savings and spending
- When an economic agent is in surplus, its income exceeds its spending: it pays down its debt or increases its savings. When it is in deficit, its spending exceeds its income: it withdraws from savings or increases its debt.
- All economic jurisdictions have three sectors: public, private, and trade. Private is the consumer economy. Public is government spending. Trade is the exchange of products and money with other entities. These add together to make GDP.
- Each of these sectors can be in surplus or deficit. By definition, the net deficit/surplus of these three components mathematically sums to zero for any sovereign entity.
- Consumers, businesses, states within a fiscal union (like the U.S. or the E.U.), etc. are "balance-sheet constrained". That is, if they run out of money, they have to go get some more, either by earning it or borrowing it. They can't just conjure it out of thin air.
- Sovereign economic agents (fiat currency issuers like the U.S. government itself) are not balance-sheet constrained. They can issue any amount of money needed to cover their spending.
The role of debt
- Debt is taken on by a sovereign issuer because it prevents the inflation that would be the result of unrestricted money creation when they run deficits. While the amount of debt increases, the total amount of money in the economy remains the same.
- Debt also provides an investment vehicle for savings. If the government is in deficit, then by the axiom above, either the private or trade sectors are in surplus: there's more money coming in than is being spent, so people buy government debt as a place to save it.
- A sovereign currency issuer can never "go bankrupt" by definition, as long as its currency has any value at all.
- The worst case scenario is for service on its debt to exceed its income, so that it must create money to pay that debt. This can cause a hyperinflationary cycle.
- Currently, the US spends 7.8 percent of its total budget on interest. By linear math, the debt would have to be 13 times larger before the above scenario could happen, although it'd run into problems before that.
- The U.S. does not have the highest debt-to-GDP ratio in the world, by far. Per Wikipedia, the most indebted nation in the world is Japan, at 234% of GDP. Japan is not in a hyperinflationary crisis; in fact, it is desperately struggling against deflation due to a shrinking workforce.
Debt myths
- Public debt is not "borrowing against our future". For every dollar owed in debt, a private (or public) asset exists. The net balance of the U.S.'s debt position is exactly zero... plus or minus a very small amount based on the difference between current, past, and future interest rates.
- China does not "own all our debt". About $6 trillion, or 28 percent, is held by foreign nations. Federal agencies themselves hold nearly the same amount, $5.8 trillion. The Federal Reserve and state and local governments hold $3.4 trillion. The rest is held by the private sector.
- The net U.S. international investment position is very close to zero. We buy a lot of currency from other nations, just as they buy ours. We owe more than we hold, but we collect more in interest because other nations pay more, so it's basically a wash. Another way of putting it is that other countries owe us almost as much as we owe them.
- If the value of the dollar falls on international markets, it wouldn't affect our economy too badly. We'd pay more for imports, but our exports would get cheaper and our trade deficit would decrease. People would buy more US products and we'd buy less of theirs.
- If China "calls in our debt" — which they can't, because it all has fixed maturity dates — they'd cause a crash in the value of the dollar, destroying their own economy which is highly leveraged against that value. They'd also destroy their trade position with us. You know the old saying: if you owe the bank $100, the bank owns you. If you owe the bank $10 million, you own the bank. That applies in full to China.
edited 27th Apr '18 10:04:10 AM by megaeliz
I will never understand the thought process that leads to "China owns all our debt thus they have leverage!" Like, no they don't. It means that any situation where they don't get repaid that debt they gain a hole in their long-term finances the size of, according to this hyperbole, the size of the US economy.
Sorry for ninja-edits, I noticed a few errors and structural issues with my post and fixed them.
"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"
I will never understand the thought process that leads to "China owns all our debt thus they have leverage!" Like, no they don't. It means that any situation where they don't get repaid that debt they gain a hole in their long-term finances the size of, according to this hyperbole, the size of the US economy.
Basically, I think it's the fact that virtually everything is made in China and the US economy depends on the extra cash they get to push things. If the USA did say "fuck it" and couldn't get any more loans, because if you don't pay why, it would self-destruct into a third world nation while the rest of the world moved on.
And good riddance to such idiots. People who don't pay their debts when they could should collapse.
edited 27th Apr '18 9:59:02 AM by CharlesPhipps
Author of The Rules of Supervillainy, Cthulhu Armageddon, and United States of Monsters.Germany trying to pay debts it couldn't is one of the things that lead to WWII, as a reminder.
And no, the USA wouldn't collapse whilst the rest of the world went on, it would essentially wreck the world economy.
Which does not explain the key feature of "why do people think it gives China leverage when it actually exposes China to enormous risk".
edited 27th Apr '18 10:02:13 AM by RainehDaze
We tend to see China as the only place able to stand up against America.
Also, a question to Americans...why American politics are so Right Wing (aka. Regressive) compared to most of Europe.
edited 27th Apr '18 10:05:34 AM by KazuyaProta
Watch me destroying my country
Germany trying to pay debts it couldn't is one of the things that lead to WWII, as a reminder. tongue
Accent on "Could."
And no, the USA wouldn't collapse whilst the rest of the world went on, it would essentially wreck the world economy.
Yes but the United States economic situation depends on its cheap imports and ownership of businesses.
Which does not explain the key feature of "why do people think it gives China leverage when it actually exposes China to enormous risk".
Because if the US defaults it will destroy the USA and China can leverage the management of that debt.
Author of The Rules of Supervillainy, Cthulhu Armageddon, and United States of Monsters.This is wrong on so many levels, and betrays a "Fox News" level of misunderstanding that constantly sabotages any efforts to enact good public economic policy.
- "Virtually everything is made in China": Unbelievably false. China acts as an assembler of products, but a relatively small portion of the components is made in China itself. The U.S. imports goods from a wide variety of countries and exports manufactured goods as well. See this site
for a list: our top five import partners are China, Canada, Mexico, Japan, and Germany.
- US manufacturing output has increased year over year, even as its total share of the economy gradually declines. https://fred.stlouisfed.org/series/OUTMS
- US manufacturing output has increased year over year, even as its total share of the economy gradually declines. https://fred.stlouisfed.org/series/OUTMS
- "the US economy depends on the extra cash they get to push things": Umm, what does this even mean? China's economy has depended on U.S. cash for quite some time, but they're working to change this. The U.S. currently gets a lot of foreign investment because it's the reciprocal of our trade deficit. None of this is inherently good or bad.
- "If the USA did say "fuck it" and couldn't get any more loans": That could only happen if Congress passed a balanced budget amendment or reneged on the debt ceiling or something equally insane. Even in a hypothetical worst-case scenario where nobody in the whole world would buy U.S. debt, the government would issue the currency to buy its own debt, because it's a sovereign issuer and can do that.
- "it would self-destruct into a third world nation": This is complete nonsense. Our "first world" status is based on our economy, not our debt position. Unless our GDP collapses due to some unimaginable crisis, we'll still be #1 for some time to come. https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)
.
Charles Phipps, you have got to stop getting your information from Fox News and CNBC.
edited 27th Apr '18 10:14:15 AM by Fighteer
"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!""it would self-destruct into a third world nation": This is complete nonsense. Our "first world" status is based on our economy, not our debt position. Unless our GDP collapses due to some unimaginable crisis, we'll still be #1 for some time to come. https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)
.
... also, "First World" actually means "Allied with the USA in the Cold War." Just sayin'. The US could be a smoking crater and it's still "First World." There's a reason no one uses "X world" in a formal setting anymore.
Found a Youtube Channel with political stances you want to share? Hop on over to this page and add them.I'm speaking from the perspective of disgust at US isolationism, exceptionalism, and willful willingness to believe we can ignore or financial as well as political obligations to other nations. The desire to shut down the government and refuse to pay debts are things I treat with genuine revulsion as well as contempt.
Clearly Fox news.
:)
Author of The Rules of Supervillainy, Cthulhu Armageddon, and United States of Monsters.![]()
They mean "Fox news" level in the sense of being misinformed, not on having the same political learning.
"Conservatives" get away with pushing insane economic policy (that just benefits the rich rather than the country) by using the analogy of household debt for national debt, which is wrong on so many levels it should be criminalised.
Household debt doesn't exist with an infinite credit limit or the ability to raise your own income on demand.
I love @NiceDonaldTrump
Russian forces were tipped off that a US missile strike was imminent, and have dispersed their equipment so as to make any attack worthless. Who gave them advance knowledge? Who telegraphed our plans? It's almost as if they have an agent deep inside the US government leadership.
Thank you, @Emmanuel Macron for returning dignity and elevated discourse to the hallowed halls of our Congress. Your calls for an enlightened multi-nationalist approach to the environment and the economy echo my own. Only by working together can we all prosper.
Happiest of birthdays today to my soulmate, friend, muse and confidante @MELANIATRUMP. Darling, I love taking this journey of life with you, sharing our joys and sorrows together. You are my rock and salvation, and I simply and truly adore you, now - - and forever. ❤️
It's surprising how many people confuse him for the real thing.
Republicans on House Intelligence Panel Clear Trump Campaign in Russian Meddling
In their own dissenting views
, Democrats on the committee accused the Republicans of prematurely closing the investigation out of a desire to protect Mr. Trump and asserted that eagerness by Trump campaign associates to accept offers of Russian assistance suggest “a consciousness of wrongfulness, if not illegality.”
The strikingly divergent conclusions closed a chapter for a congressional committee that, while charged with oversight of American spy agencies, has fractured into warring factions that often seemed to see the advancement of political agendas as their primary mission.
In the charged political climate that has engulfed Washington, the report — the first out of several government investigations into Russia’s interference — is certain to serve as a useful political tool for Mr. Trump and his allies. The president quickly seized on the Republicans’ findings, extolling the conclusions on Twitter and calling the inquiries “A total Witch Hunt!”
“MUST END NOW!” he added.
"Just Out: House Intelligence Committee Report released. “No evidence” that the Trump Campaign “colluded, coordinated or conspired with Russia.” Clinton Campaign paid for Opposition Research obtained from Russia- Wow! A total Witch Hunt! MUST END NOW!"
Republicans did not entirely spare Mr. Trump’s campaign in their report, but their criticisms were in most cases limited to bad judgment.
“While the committee found that several of the contacts between Trump associates and Russians — or their proxies, including Wiki Leaks — were ill-advised, the committee did not determine that Trump or anyone associated with him assisted Russia’s active measures campaign,” the Republicans wrote.
They trained their fire more sharply on Democrats and other perceived opponents of Mr. Trump. Republicans criticized the Obama administration for a “slow and inconsistent” response to Russia’s active measures. And they admonished the campaign of Hillary Clinton and the Democratic National Committee for hiring Fusion GPS, a research firm, to investigate ties between Trump associates and Russia.
The firm in turn hired Christopher Steele, a former British spy, who produced a salacious dossier outlining a conspiracy between the campaign and the Russians.
Republicans had released key findings from the report in March. The full report, heavily blacked out in parts by American intelligence agencies, includes recommendations on issues as diverse as cyber and election security, as well as a call for the executive branch to consider administering mandatory polygraph tests to political appointees with top-secret security clearances who are not confirmed by the Senate.
Though they absolved the Trump campaign, the Republicans warned that the government of President Vladimir V. Putin of Russia would be back without significant deterrence efforts.
“Unless the cost-benefit equation of such operations changes significantly, the Putin regime and other hostile governments will continue to pursue these attacks against the United States and its allies,” they wrote.
The investigation was one of several by the government into Russian election interference and possible ties to the Trump campaign. The Justice Department’s special counsel investigation is continuing, and the Senate Intelligence Committee is moving forward in its own inquiry.
But the House investigation was from the beginning buffeted by politics.
Representative Devin Nunes, the California Republican who leads the committee, became a reliable ally for Mr. Trump who engaged in attempts to pin blame on Obama administration officials and so-called deep-state bureaucrats to undermine Mr. Trump.
Republicans blamed their political opponents, especially Representative Adam B. Schiff of California, the committee’s top Democrat, for launching a partisan crusade against the White House and for too often litigating the committee’s internal disputes during national television appearances.
During open hearings, Republicans on the committee often seemed more interested in pursing leaks to the press than investigating Russia’s widespread efforts to sabotage the American election.
The sham investigation doesn't actually find anything? How surprising.
Wasn't that months ago?
Found a Youtube Channel with political stances you want to share? Hop on over to this page and add them.That's fine, but please don't quote Fox News talking points about the economy as evidence for your position.
It is absolutely true that reneging on our public debt would create an unprecedented global and domestic crisis, but the reasons for that are vastly different than what is held in "common knowledge".
edited 27th Apr '18 11:13:31 AM by Fighteer
"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"![]()
they just released the whole thing I think. It can be read, in all of it's glory, here
It's heavily redacted, but it doesn't stop it from being really dumb.
Also, a CNN reported mentioned this on his Twitter.
Just keep digging yourself in deeper, won't you.
edited 27th Apr '18 11:20:06 AM by megaeliz
Maybe if they do it for a third time something will happen...
So this is going to be his petty evil Fireside chats?
edited 27th Apr '18 11:22:14 AM by 3of4
"You can reply to this Message!"edited 27th Apr '18 11:38:30 AM by megaeliz

Our Right Wingers move from decent, only to be destroyed for crazier Right Wingers to outright pure evil.
It was better when the white overlords weren't overtly blonde with blue eyes
edited 27th Apr '18 9:36:25 AM by KazuyaProta
Watch me destroying my country