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0 pointsdarawk4y ago0 comments

> "The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default." Alan Greenspan

While this is partially true:

1. Sovereign nations absolutely can and do default. See, Russia in the 1990s and the LTCM fiasco.

2. Even though they do not have to default and can always print money to pay their debts, doing so causes inflation. How much inflation it causes is proportional to how much money is printed.

Now, the dynamics of inflation are pretty complicated, so in certain circumstances you can get away with it for a while. But it is not the case that the government can print money indefinitely with zero consequences.

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sega_sai4y ago

Sovereign nations can default if the debt is nominated in a different currency (which was the case of Russia, but is not the case for US)

darawkOP4y ago

No, they can default even when it is denominated in their own currency, which is what Russia did.

https://en.wikipedia.org/wiki/1998_Russian_financial_crisis

Most countries just choose not to do this. They weren't forced to default. They could have chosen to monetize their debt. They just didn't choose to do that.

User234y ago

A sovereign could choose to default even if they somehow had a net surplus. Because, you know, sovereign literally means you can do whatever you want up to some more powerful foreign sovereign invading, because you have a local monopoly on violence.

xxpor4y ago

Point 2 is extremely debatable, especially if you're a reserve currency. The balance of payments also matters.

darawkOP4y ago

It's really not debatable at all. What is debatable is how much printing it takes. It is not debatable that there exists an amount of printing that will cause inflation.

xxpor4y ago

It very much depends where the money ends up and what it's doing. See the past 13 years in the US and western world generally.

whatever14y ago

If your piece of paper is backed by the US air force, I will buy it, no matter how much you print of it.

darawkOP4y ago

Sure. But the rate you will buy it at will change.

jkhdigital4y ago

And the line between “acceptable consequences” and “catastrophic consequences” is basically unknowable, so it’s not a bad idea to err on the side of caution.

throwaway342414y ago

> so it’s not a bad idea to err on the side of caution

Over time it's gotten harder for me to figure out what the side of caution even is. If they are too aggressive in stimulating the economy, they risk inflation. If they are not aggressive enough they risk a persistently weak economy, escalating political dysfunction, and (if history is a guide) eventual collapse of the status quo and usually even-more-inflationary policies.

It doesn't seem like there is a safe path anywhere - errors on either side seem like they could be potentially catastrophic.

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sega_sai4y ago

Sovereign nations can default if the debt is nominated in a different currency (which was the case of Russia, but is not the case for US)

darawkOP4y ago

No, they can default even when it is denominated in their own currency, which is what Russia did.

https://en.wikipedia.org/wiki/1998_Russian_financial_crisis

Most countries just choose not to do this. They weren't forced to default. They could have chosen to monetize their debt. They just didn't choose to do that.

User234y ago

xxpor4y ago

Point 2 is extremely debatable, especially if you're a reserve currency. The balance of payments also matters.

darawkOP4y ago

It's really not debatable at all. What is debatable is how much printing it takes. It is not debatable that there exists an amount of printing that will cause inflation.

xxpor4y ago

It very much depends where the money ends up and what it's doing. See the past 13 years in the US and western world generally.

whatever14y ago

If your piece of paper is backed by the US air force, I will buy it, no matter how much you print of it.

darawkOP4y ago

Sure. But the rate you will buy it at will change.

jkhdigital4y ago

And the line between “acceptable consequences” and “catastrophic consequences” is basically unknowable, so it’s not a bad idea to err on the side of caution.

throwaway342414y ago

> so it’s not a bad idea to err on the side of caution

It doesn't seem like there is a safe path anywhere - errors on either side seem like they could be potentially catastrophic.

j / k navigate · click thread line to collapse