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Comment by CWuestefeld | Hacker News Reader

Sure, if you choose to look at it that way. But if you're going to make "Non-convertible floating FX currency regimes (ie fiat money) ... can meet any and all financial obligations by issuing currency", then you've got to consider that entire reference frame.

Issuing currency is identically equal to inflation, which is itself nothing more than a tax levied against those holding assets denominated in that currency. Using this option makes continued borrowing increasingly expensive, because those holding the debt wind up not getting repaid in actual value, only in nominal currency.

So when you look at the world from your perspective, the result is still that, long term, continually increasing deficit and debt is unsustainable.

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> Issuing currency is identically equal to inflation

That's the main dogma of monetarism, but the empirical evidence for it is fairly contested (especially by neo-Keynesians). Measured inflation in many cases doesn't seem to actually move in line with what changes in the money supply would predict; for example, we should have much higher inflation currently than we do. Some monetarists did predict significant inflation, or even hyperinflation, two years ago, in the wake of stimulus spending and quantitative easing, but it didn't materialize. But I suppose I'll keep reloading http://www.hyperinflatingyet.com periodically just to be safe...

<i>Issuing currency is identically equal to inflation</i> No. There is demand pull inflation and cost push inflation. If you remember from econ, inflation or price level is the intersection of supply and demand curves. Since demand and supply are not constant, it is possible to issue greater amounts of currency in the face of greater amounts of supply and still see prices decline if the increase in supply outweighs the increase in demand from issuing more currency. What you are referring to is a gold standard or fixed exchange regime concept(this is what Austrians advocate). In a gold standard, money is a receipt for a piece of gold sitting in a vault. So issuing more money without increasing the supply of gold dilutes the value of money in terms of gold. In fact, this is where the term printing money comes from in the first place. This is not applicable in a fiat currency regime. In a fiat money regime, you can give everyone a million dollars tomorrow and if they don't spend it, there is no inflation. No such thing as printing money in a fiat money regime. All money is created and destroyed in the same way. There is no magical level where money goes from not being printed to being printed in fiat.

<i>continually increasing deficit and debt is unsustainable.</i> Yes but you have to have a model to tell you when to stop increasing deficits and arbitrary numbers like 10 Trillion or 4 Trillion don't mean dick. With modern money, the size of the deficit is equal to the savings of the private sector. Paying off the deficit decreases savings to the private sector which either leads to a recession or credit bubble ( to make up for the lost money.) Deficits need to be targeted based upon the level of inflation and unemployment in the economy that policy makers wish to achieve. Obama cannot on the one hand call for "fixing the deficit problem" while on the other hand calling for more jobs. The two are pretty much antithetical.

inflation or price level is the intersection of supply and demand curves

As I understand your claim, you seem to be regarding the entire market as a single monolithic commodity -- a common Keynesian error.

Sure, the prices of discrete commodities fluctuate as their quantities supplied and demanded fluctuate. That's not at all the same thing as devaluation of the currency due to increase in the money supply.

That said, there's a good deal of controversy over the effect of wages (whose price tends to be sticky, preventing "proper" adjustment for supply/demand). Thus, even Austrians think that a moderate level of inflation is good, because it acts as a hidden throttle on the effect of wage increases.

Was referring to aggregate demand and aggregate supply.

Sure, it can cause inflation, but it is incontrovertible that governments can always replay local currency debt by issuing currency (except the EURO, where priting money has been offloaded to an external entity). Which is why sovereign debt in local currency is always the risk free credit, by definition. And the US is in the enviable position where, due to the nature of the dollar being the global reference currency, all (most?) of its debt is denominated USD.

So I'm left puzzled at the recent debate about the US debt.

Yes they can.. unless an angry mob whose life savings they just stole does not overthrow them. There are limits on how much you can do this and stay in power, they don't figure in the economics calculations but they do exist in real life.

Yes, in the long term, printing money will lead to an inflationary spiral. The expectation of that will cause higher interest rates. But the fact remains, that in an emergency, it is a possibility. And the possibility of creates greater safety/willingness to lend.

Moody's in its latest assessment says:

"The global role of the dollar, which underpins continued demand for U.S. dollar assets, .... provides unmatched access to financing, meaning that the U.S. government can support higher debt levels than other governments"

http://economix.blogs.nytimes.com/2011/08/08/moodys-why-the-...

No, an increase in the money supply directly leads to inflation (other things being equal, notably the velocity of money).

It's right there in the terminology: money supply. What happens when the quantity supplied of a good increases? With a constant quantity demanded, the price goes down. So it is here: if the quantity of money supplied increases, the value of that money decreases.

Thus, paying one's debts with inflated currency means that you're giving yourself a discount off the amount you owed. And that creates lower safety/willingness to lend.

You have to define what printing money means? The term doesn't apply to modern fiat money. And naturally I should define what modern fiat money is. But in a broad sense the government should continue issuing currency( by increasing spending -preferably on infrastructure- or reducing taxes) which increases aggregate demand until spare capacity ( which includes unemployment) is exhausted in the economy.

In the USA the printing of currency has also been offloaded to an external entity (the Fed), and the amount of currency to circulate has been fixed by Congress. Thus while in theory it is possible to just print money, in practice it is a lot more difficult than that.

> Issuing currency is identically equal to inflation

That simply isn't true, not even close to true.

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