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Comment by howeyc | Hacker News Reader

This misconception needs to die. The government doesn't borrow money. The government doesn't need your money.

The government prints money. They could stop accepting taxes tomorrow and still be able to keep spending. They print the money.

Treasuries exist as an accounting fantasy for people to believe the government needs to borrow, they don't. Any treasuries outstanding today basically just represent dollars to be printed in the future.

What matters is amount of dollars in circulation and velocity of money. Inflation.

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My understanding is that, while government debt is in some ways a fiction, it serves an important purpose in setting the risk-free rate of return in the economy. Yes, the debt could be eliminated and replaced with constant money printing, but this would eliminate that important market signal.

By pinning rates low as the Fed has done, that signal has been disrupted, and that is probably why we've seen repeated financial bubbles and panics. Also, it runs the risk of money being diverted to projects that only make sense because the risk-free rate of return is so low that extremely risky ventures seem "worth it."

> Also, it runs the risk of money being diverted to projects that only make sense because the risk-free rate of return is so low that extremely risky ventures seem "worth it."

This makes it sound like low interest rates encourage high-risk high-reward ventures. However, they also very much lead to unprofitable businesses surviving, where the possibility of high reward is simply not there; zombie companies. This allows badly managed companies to coexist along with well managed ones, increasing market inefficiencies and lowering productivity of an economy by not letting markets eliminate rotten apples and allowing better business models to take over.

Your point is accurate that true borrowing isn't really an apt description since they just alter the effective supply of money but technically they do need to borrow because they don't have complete control of the Federal Reserve. Granted congress could change that if they wanted to if the Fed angers them enough. But exactly how such a drama would play out is complicated.

printing money is essentially a wealth tax on everyone that owns the money. It's a flat tax. However, it also can cause prices to rise, and then... what will they do?

Inflation isn’t evenly distributed, because new money isn’t evenly distributed. Those who get the new money earlier experience less inflation. This phenomena is known as the Cantillon effect.

Wrong. You don't have any clue what you're talking about. Fractional reserve banking exists to create money regardless of how much money is being printed. Inflation is the measure if price increases overtime. Velocity does not equal inflation, it indicates greater consumer demand for goods and thus can signal rising prices.

The government does borrow money. It borrows it from a central bank by selling it bonds. Bonds for which the public owes the future payments. Thus the government borrows from the public.

Put down the Marx and new monetary theory bullshit. Money has value, money has meaning, money is real. Your understanding is flawed.

The government creating money is the country borrowing money from itself. At some point, a good portion of that money needs to be paid back, in the form of destroying said printed money.

Simply not true, especially if wealth grows and people hold onto money as savings.

The money supply needs to increase to account for how people are using it. When there's not enough money, it's far far worse than inflation.

Another misconception that has to die is that governments can get away with printing money indefinitely. The concept itself is not new: Roman Empire also did the same, shortly before its fall. Soviet block countries did that before 1989. Venezuela and Zimbabwe also did it. See the common theme here?

The difference between the smaller countries and the USA is, the dollar is basically the world's currency now. The world can afford to let Venezuela fail, but if the USA fails, the whole world goes down with it, so IMO they'll happily "lend" the USA more money.

With the Roman Empire, I'm guessing other problems caused it to fall; it didn't fall because of money printing, but it was printing money because it was falling.

But printing dollars like they're toilet paper might lead to the US no longer being the reserve currency. That isn't a divine right. It isn't a once-and-forever thing. We can lose it.

There would have to a perfect storm of events that stains the US as unstable. A Pandemic or mortgage crisis is not enough.

We’d need devastated cities, war on our soil, or a string of insane natural disasters (Yellowstone erupting).

The only other realistic event? China brings a billion people into mostly lower middle class, and dwarfs the notion of American consumerism through sheer scale.

The U.S. share of world GDP has already shrunk from over 40% after WWII to under 25% today. This was the reason Nixon had to take the dollar off the gold standard and make deals with Saudia Arabia and OPEC to ensure oil was priced in dollars, otherwise many countries would have used other currencies for their trade. Since then we have been importing consumer goods, first from Japan and more recently China, to the detriment of American workers. The rest of the worlds growing share of GDP needs more and more dollars, and we can't satisfy that demand without continuing to debase our currency and causing problems at home. More and more countries are making deals outside the dollar system, countries that are too big for us to blow up easily.

This is what ended the British pound as the worlds reserve currency, and the Dutch gilder before that. Their share of world GDP shrunk rendering their position untenable.

I can't do this topic justice, but I thought this was a really good write-up, https://www.lynalden.com/fraying-petrodollar-system/

> The world can afford to let Venezuela fail, but if the USA fails, the whole world goes down with it

Hypothetically if the riots at the Capitol had gotten really bad and America fell even close to Civil War a couple of weeks ago, I'm quite certain the rest of the Developed World would have quickly switched to using the Euro or the Yen or the Yuan or some combination of those and more.

I seriously doubt it would take more than a few days before the rest of the world moved on without the US.

There's no real Euro safe asset equivalent to Treasuries. Until that changes, the dollar is here to stay.

I'm not an expert in this area, but I doubt the world changing their debt to a different currency is that simplistic... and I doubt you're an expert either.

For one thing everyone wanting to get rid of their USD and buying EUR would cause the USD to crash and EUR to spike, so, well, there's their economic crisis (because suddenly your 10000 USD debt would turn from a ca. 8200 EUR debt to something like a 20000 EUR one).

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