U.S. Deficit, Pegged at $1.7T, Effectively Doubled in 2023
nytimes.com
nytimes.com
When a less powerful country does that, it bears most or all of the cost itself. When the US does it, much of the inflationary cost is borne by all other countries that use the dollar as a reserve currency. Other countries don't have a reserve currency like the dollar.
the money isn't printed. It's debt, which is different. The debt is expected to be repaid, with interest.
If you actually printed money, which does not have interest to be repaid, then the amount of circulating money would've increased permanently. Therefore, the expectation is that each printed dollar is worth less. By borrowing instead of printing, you don't have this permanent increase in money supply. Of course, there are other ways to increase the money supply, which is to control how much debt actually makes it into the system - but this can be regulated as required by the economy.
> Other countries don't have a reserve currency like the dollar.
the dollar being reserve is not really "forced" upon other countries - it's a choice they made to use USD as their reserve. They do it because other parties trust it. They could use the japanese Yen, or even the chinese yuan. And yet, majority of entities choose to use the USD.
They do it because it's a relatively stable currency. They do it because other people accept it, and they do it because there's some trust that the US won't print money like Venezuela or Zimbabwe.
You have to get your head around the fact that this is an open-ended system, the music never has to stop so long as the sun rises and we stay on this monetary system. The same way people still get "wealthier" from stock market appreciation, even though there is a buyer for each seller, so too does more debt indeed mean a permanent increase in money supply[1].
The several countries that tried not to use the usd kinda got penalised, though.
That theory, even though it's floated a lot and is assumed true by otherwise smart people, never made too much sense to me because of the simple fact that a country that's already in the very bad books with the US would be the one that tries to switch to a different currency.
For example Iraq and Libya were already on the list of the countries that the US would take military action against, for several strong reasons nothing to do with currencies, before they floated the idea of switching to a different reserve currency. So it's correlation rather than causation.
For a lot of it: No loans have been made, no obligations sold, No foreign or domestic entity has handed over "real money" No interest rate has been set.
For other parts the US government has bought its own obligations.
And then there are parts that are actually loans from other entities.
If they wanted, they could mint a few $1 trillion USD coins and whoosh the money exists.
The US is able to do this due to the special status of the USD as a reserve currency and general trust.
Venezuela is not able to do this because they lack the might and power od USD. Nor would Norway.
Under Covid Norway spent "real money" from their piggy bank. The US spent a lot of invented money. (But also, other categories)
https://www.investopedia.com/terms/t/trillion-dollar-coin.as... https://www.investopedia.com/government-stimulus-efforts-to-...
of course this is true - that's what sovereign power means.
And yet, other entities have trust that the US gov't doesn't just do it. Thus, the 'general trust' as you said. And this special status as being a reserve is mainly due to this trust - no amount of coersion is going to make an untrustworthy currency a reserve.
If it is created as debt, then there's a due date for which it is repaid, with interest. In which case, it works out OK, if the interest is lower than actual economic growth.
Try selling your oil in anything but usd and see what happens. It's not a choice if the consequences of making the 'wrong' choice is being invaded, bombed into the stone age and have your country pillaged and its assets handed off to reserve currency alligned corporations.
Is there a reason everybody here seems to believe in that threat? I don't think the US is keen to repeat the 200X invasions. Plus Saudi Arabia, a US ally is threatening to switch to China's currency despite that?
Do the planners not know this will happen? Probably. They might have predicted those outcomes as worst case scenarios. History seems to point to it being the usual outcome. Bias I guess.
For them this is a trolley problem on one set of tracks is economic harm to the US and on the other as an indirect effect 500k deaths of people not anywhere near the US. Heck if they don't pull the lever somebody else will.
Anyway the practice of the US to externalize their inflation will cause extreme instability in the US if it can't wean itself off it.
And yeah, the US is known to be a fan of regime change, but again, what indicates that this was done to support the dollar as reserve currency specifically?
One person's debt is another person's money. Our economic system is built on an expectation of contistent growth, deflation is not an option and those in charge will do everything they can to avoid it.
When the government creates new money it's technically debt, but debt they will never get back and clear off the books. Doing so would reduce the money supply and either cause deflation or reduce GDP, neither are acceptable for the system. They tried quantitative tightening policies to remove some of the debt/money created after the housing crisis, even a small amount of QT hit hard and they very quickly abandoned the idea of allowing those debts to be paid back (or ought back and removed).
And yet, realistically, the US is almost at the end of a trajectory where they keep borrowing until they can't repay even the interest then default. What scenarios are there now where it makes sense to even try drawing down the principle?
The only question is who is eating the real losses. The ambiguity of that is half the spectacle. Ironically, US taxpayers are in it with the best chance of avoiding that particular burden.
> They do it because other parties trust it.
Speaking of, the Chinese seem to be losing confidence in the dollar, their treasury securities holdings are going down [0] remarkably quickly. They're at around 60% of peak and dropping. Amazingly, the US is still seeing foreign holdings of treasuries going up!
[0] https://ticdata.treasury.gov/resource-center/data-chart-cent...
nobody has to lose.
A buyer of a treasury is receiving interest payments, and will receive the entire principle on maturity. At the time of buying, the buyer must have judged that the value is worth buying. In the future, if the value drops, then that's loss, but it's not unexpected. Just like if the value grow.
Debt is something that is used to produce _more_. Now, if the debt was not used properly and with care then, that's a different story...
When banks make a loan they are literally creating new money into existence.
Perhaps you meant Bank Reserves which is the underlying system banks and the fed use and the dollars which is bank customers like you and me use.
Debt is new money, but this new money is _different_ from printed money. It's because the debt has to be repaid, which implies you have to have the ability to repay (otherwise who would do the lending?). Therefore, this implies that production increases at a rate that is at least the same as, if not higher, than interest rate charged.
Overnight money is repaid every day and replaced with a new loan for the following day. That also happens with so called “debt”.
Money and debt are fundamentally the same thing. They are issued by the same entity which has the same lifespan. Necessarily the debt can never be “paid off”. All that happens is the assets are swapped around.
Lending happens automatically as a function of accounting for a payment journal. The only people who get excited about it are those who are hard of accounting.
Money is debt. Time to accept that.
Banks generate money via debt. This is OK. If the treasury starts printing money - like what Zimbabwe or Venezuela did (or the Weimar Republic[1] pre-WW2) - then you will get rampant inflation.
[1] https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_R...
Debt is supposed to be repaid, or should be repaid, or comes with great declarations of an intention or obligation of being repaid, but debt can be kept indefinitely.
Cases from the top of my head:
- IMF lends money to country. Later the country is insolvent, and the credit is renegotiated to a lower amount (same for mortgages) as opposed to getting nothing.
- Parents "lend" money to children for house downpayment. Parents died without debt having been paid.
- World ends tomorrow by $reason_of_your_choice. All the existing debt gets cancelled.
- Friend lends some money to another friend. They fall out and never repay the debt, and everybody lets it go.
I understand this logic, and I am trying to square it with the following:
When there is instability investors flee to the dollar (like during covid), and the demand for it increases (dollar goes up), also from other countries increasing reserves. So If when the dollar goes up the US prints more dollars, are they really getting into debt? It seems like a different case form other countries.
OP said printing dollars makes the dollar worth less
> expectation is that each printed dollar is worth less
And I said in times of instability the demand for dollars increases (dollar goes up).
What I am saying is the "every dollar is worth less" of printing dollars might be offset by the higher demand of dollars in times of crisis.
> > If you actually printed money, which does not have interest to be repaid, then the amount of circulating money would've increased permanently. Therefore, the expectation is that each printed dollar is worth less.
So I really do not understand the relevance of what you are saying. It seems disconnected from the actual comments I made. I did not mention "necessary". I think you might be responding to the wrong thread,
In poor countries, as you pointed out, deficit spending is a more acute problem, usually felt through currency collapse that mainly hurts the largely poor population.
The rest is advanced mental gymnastics. It's hard to convince someone when their greed depends on them not understanding it.
If the BRICS overthrow the U.S. dollar, there will be a come-to-Beevis moment in the U.S.
Yeah:
> Pretty straightforward really. You combine Brazil's history of monetary stability, with Russia's respect for property rights, India's domestic tranquility, China's financial transparency, and South Africa's investment opportunities - and hey presto, you've got a new global money
* https://twitter.com/davidfrum/status/1665053372402081792
How anyone lump China and India, not exactly the best of friends, together is beyond me.
imo there is zero chance of BRICS ever amounting to anything more than a photo-op every couple of years.
I think what's behind all this reckless spending is the fact that the US armed forces are the biggest and most powerful in the world. While they have the most guns and are prepared to use them, it's not going to be easy to change this world order.
Like, who's going to stand over the 7ft 300lb thug?
The US wont just sit around while their position is eroded,at least in my opinion.
We're also relatively good allies and I think this goes a long way too.
If China had a 10x more powerful military and Navy than the USA, had experience in combat and was willing to use it. It wouldn't take long for the Yuan to win.
The Chinese state views control over capital flows as more important than the prestige of reserve currency. They can, and have, clamped down significantly on foreign outflows when they deem it necessary.
If China plays its cards right, the US is going to start having a bad time still this decade. The US should be aggressively trying to reach a more balanced economy. The distribution of not just wealth, but of the ability to generate wealth, leaves the US on very shaky ground.
Not only would China need to play its cards right, it'd need to win the lottery to overtake the U.S.
It's also the backdrop of the infighting over the Speaker of the House. It's the Speaker who has control over the budget, not the President. If you look, for example, at the R votes against Jordan, it is mostly those on the appropriations and defense committees who want to keep the spending going at any cost.
It seems to me that the past decades have convincingly demonstrated that countries really can keep running up debts basically forever, and nothing particularly problematic ever actually happens, except in a few cases where the economy overall is in an extremely bad shape for a variety of unrelated reasons.
Can someone with more knowledge enlighten me what all the fuss is about?
Quite sure you answered your own question here. Survivorship bias isn't a valid argument. Lebanon, Greece, Pakistan, Turkey all come to mind in the last decade, all with unsustainable amounts of debt.
The modern monetary system is a faith based system which hands leeway to governments to create and destroy supply at will. When people lose faith it all collapses very quickly, the failure modes are never slow. The relatively small Silicon Valley Bank is a great example of this and the systemic collapse in confidence of banking.
Incompetent government is the higher risk.
And with Greece, the problem was only partly created by themselves: it was also the French and Germans who insisted that their bankers (who held a large portion of Greece's bond) be paid back and were willing to blackmail the Greek government. This is evidenced by the fact it all went away when the ECB said (Draghi: "whatever it takes") it would be the lender of last (like the US Fed is).
or wrong incentives in gov't.
Those countries that was listed in the quoted comment are basically subsiding large portions of the people - fuel, food, public sector 'jobs' (non-productive jobs), etc - and funded it via debt.
I guess incompetence and 'malice' are indistinguishable at some point.
> The currency has been devalued by 90% – still not enough to reflect its slide in full. Inflation is in triple digits. Public services have collapsed; without hiring a private generator, households can expect only an hour or so of power a day. Shortages of drinking water have contributed to disease outbreaks, including the first cholera cases for decades. Parents are sending their children to orphanages because they cannot feed them. A growing number of citizens have resorted to armed robbery as the only way to extract their own deposits (now vastly reduced in real terms) from banks when they desperately need to pay for basic services such as healthcare. The collapse of Lebanon, formerly known as the "Switzerland of the Middle East", has been described by Western media as one of the most devastating and worst financial recessions since at least the 19th century.
The same is somewhat true for corporations as well.
There is a lot of uncertainty in the future. Will human population shrink ? Will robots get cheaper than humans for general tasks ?
The federal budget doesn’t move as fast as bond traders. but in the end the fed can pump and dump short or long term bonds at will. But it generally is data driven as is the federal budget.
I only just recently learned that national debt is sourced from bonds, purchased by individuals and companies as a safer place than cash, so take what I say with a pinch or two of salt.
“Two ways,” Mike said. Gradually and then suddenly.”
– Ernest Hemingway, The Sun Also Rises
Also social security doesn't need to be cut, as much as the GOP would love to do so, you just need to remove the cap on the tax at $160K and suddenly it's solvent for the next 50 years.
There are very simple fixes to this, and most of them involve taxing the rich back at the rate they were taxed under Reagan and Clinton.
https://downforeveryoneorjustme.com/archive.ph
As a hack, fill /etc/hosts from parts of `dig archive.today ANY @carl.archive.is`
178.17.174.208 archive.ph archive.is archive.today archive.li
23.184.48.154 archive.ph archive.is archive.today archive.li
179.43.151.41 archive.ph archive.is archive.today archive.li
5.188.6.118 archive.ph archive.is archive.today archive.li
94.140.114.194 archive.ph archive.is archive.today archive.liSee https://en.wikipedia.org/wiki/List_of_countries_by_military_...
Not trying to be a low-effort reply but any Economy 101 textbook will theorize this kind of debt/interest/inflation mix is impossible. Practically, the world is too dependent on the USD in one way or another. If they try to break loose, they might get confronted with those military expenditures which is a good enough incentive to keep using USD as a global reserve currency.
The people that have been warning about this scenario for a decade are finally getting proven right. The us banking system is unraveling before us and I’m getting the pop corn out.
Hopefully the people learn from the failed systems that caused this debt bubble like San Francisco and don’t spread their ideas farther than those borders so something is salvageable from this mess we created.
People said the exact same thing in 2009, and two years later everything was back to the way it had been before.
Plus, I don't know much about monetary policy, but wouldn't the Fed feel obliged to start quantitative easing if the government's debt put it in difficulty?