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Comment by stephen_g | Hacker News Reader

I think the biggest thing to keep in mind is that the Federal Government of a monetarily sovereign nation (like the US, UK, Japan, Australia, etc.) plays by different rules to a household or business.

This could be a massive problem if the debt was denominated in a currency other than US dollars (which the US Government controls the monopoly currency issuer for). But since all of the US's debt is in US dollars, and they're not constrained by artificial limitations like commodity convertibility or fixed exchange rates, it's just an interesting fact that doesn't actually really matter much.

The real killers are excessive private sector debt, and even worse, debt denominated in a foreign currency.

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The notion this can go on indefinitely with no repercussions just bc the debt is denominated in our own currency doesn’t square with reality. Everything has a cost.

The big cost of the national debt is that we have stuff now instead of later.

That’s only true of external debt. I.e. debts owed to other currency areas. Government debt is just the number of funds from the currency originator (central bank) to it’s distributor (treasury). Both institutions are a subject of the nation state, which is controlled by the government. So it’s not a “debt” in any colloquial sense of the term, neither is it an intergenerational transfer, since the souvereign nation state is an institution that both creates and enforces it’s own currency... which by definition implies it can create as much money (“debt”/“credit”) as it seems fit.

Yeah, "instead of later" would have been better constructed as "instead of waiting".

that cost would be inflation, but inflation is not even close to unreasonable levels. In fact, 2% ish inflation is healthy, so the "cost" is really more of a benefit at this point.

I often wonder how many people have thought about inflation as a tax on the poor. It hurts those with less discretionary funds the most. I also think it's ridiculous what the government does and does not include in it's inflation calculation(s).

Inflation is a tax on savers, not the poor.

Yes, I forgot savers/creditors.

However, it does affect those whose expenses rise and a) are on fixed income or b) don't get raises as quickly and frequently as the prices of everyday needs increase.

Inflation is not a tax...

Inflation also reduces the value of old debt in relation to current income.

The limits are the resources that are available for sale in your country - goods, labour, services. Ultimately this is limited by the available natural resources.

It’s all about the real economy - to the money issuer the debt is just an accounting detail.

That is partly because of the petrodollar BTW.

> That is partly because of the petrodollar BTW

No, it's not. It's because Americans are massive consumers. We buy things, domestically and internationally, with U.S. dollars which in turn fuels demand for U.S. dollar-denominated assets. Attributing the dollar's hegemony to its use in commodities pricing reverses cause and effect.

Well, it dates back to when the gold standard ended in 1971, and then there was the oil crisis in 1973 etc.

> it dates back to when the gold standard ended in 1971, and then there was the oil crisis in 1973

The U.S. dollar was put at the centre of the Bretton Woods system in 1944 [1] because the United States, at the end of WWII, (a) held a global nuclear monopoly and (b) was the sole industrial power not bombed to the turn of the century. The dollar thus took its central place in global trade. That, in turn, led to oil being priced and traded in dollars.

[1] https://en.wikipedia.org/wiki/Bretton_Woods_Conference

Foreign demand for USD does in effect lower US govt borrowing costs given our situation of having a fairly large trade deficit as well. Petroleum is one example of foreign USD demand (china buys oil with USD, for example), as are central bank reserve holdings, real estate transactions in Argentina, and I'm sure there are other examples as well. These foreign demands for USD in effect lower our borrowing cost as it prevents the USD from being dumped, eg, prevent a devaluation of the USD by foreign holders of USD, which allows us to keep interest rates low and thus finance a large deficit cheaply (so the govt keeps doing it).

> Foreign demand for USD does in effect lower US govt borrowing costs

This is correct. But petroleum trading in dollars is an effect of the dollar's hegemony, not a cause.

Every dollar transaction contributes to the dollar's network effects. But petroleum's contribution is small and overstated. Petrodollar hypotheses are closer to conspiracy theories than useful models.

The U.S. dollar is underwritten, ultimately, by American consumption. About 15% of American imports are petroleum [1][2], so it's a significant factor. But it's not special in any particular regard.

[1] https://traderiskguaranty.com/trgpeak/what-are-the-top-10-u-...

[2] https://wits.worldbank.org/CountrySnapshot/en/USA/textview

You're inverting cause and effect. The petro link to the dollar is because the US was the first major oil nation, it had a relatively dependable currency, and it developed the world's largest market economy. The dollar didn't become standard due to oil, oil (and most every other commodity) became priced in dollars because of the might of the US economy.

Japan's debt being overwhelmingly domestic, priced in yen, is also not due to the petroyen (which doesn't exist).

As I understand it, the USD's strength is a function of the petrodollar. The petrodollar is supposedly a function of the U.S. military power. IIRC a old PBS doc about Saudi Arabia explained that the Saudi's were made and offer that [they] couldn't refuse to 1) price in and accept USD; and 2) supply @ at price levels deemed reasonable by the U.S. Obviously, they've lost some ability to control price w/the advent of the technology and the futures exchanges, but still...

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