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Comment by mrtksn | Hacker News Reader

For other countries USD is something they have to work for or sell something to acquire it. If they screw up they may end up in crisis being unable to obtain USD. Borrowing in their own currency will be much more limited and borrowing in USD much more costly.

USA on the other hand can just print it out of thin air and because the global USD liquidity is huge they can do it for much longer without facing the consequences of it. USA is also borrowing in currency they can just print to pay their debts. Very advantageous position for USA and they took advantage of it, imported crazy amount of products and services otherwise they wouldn't have.

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Thank you for elucidating the fact that US “borrows” in its own currency and so as long as we have monetary sovereignty (which we do to a great degree due to USD being the global reserve currency) we have no deficit problems (as long as we keep inflation in check).

I implore everyone reading this thread to read up on Modern Monetary Theory (MMT). Stephanie Kelton’s “The Deficit Myth” is a good place to start. Until more people have a better understanding for how the system works, they’ll continue to be confused and easily led astray by politicians who don’t have the best interests of most people in mind, but instead wish to rob us blind in a vain attempt to eliminate trade/budget deficits.

(Note: I’m very much for restoring domestic manufacturing as much as possible, including the use of highly targeted tariffs, industrial policy, R&D, workforce development, etc. but this is not what the current administration is doing, not even close).

I don't think domestic manufacturing works anymore.

The pressure to automate will just skyrock.

I'm more for a global currency which will be given to everyone who does certain jobs we can't automate away or don't want to like nursing, teaching.

Everyone around the globe can get worldfiat when they do these jobs.

We need to start thinking beyond known capitalism in a modern highly automated world.

There are important reasons to have domestic manufacturing even if automated and not creating jobs.

Sure but that's not enough to give people enough jobs.

We want automation x1000, every useful automaton increases the quality of life by increasing productivity.

    as long as we keep inflation in check

That's the trick though isn't it? MMT discourse tends to gloss over or ignore the dangers of runaway inflation and act as if you can borrow all you want with no consequence. But that part that you put in parentheses above is precisely why you can't do that. What you borrow for your budget has to be payed back later. If you just print money to do it because you borrowed more than you could afford then you inflate your currency. If inflation happens too quickly you have serious problems. It's not free money.

It really is bizarre that huge portions of economics nowadays sidestep the fact that individuals, groups, and countries, have finite amounts of credibility.

That it can be depleted and take well over an average lifetime to regain.

> MMT discourse tends to gloss over or ignore the dangers of runaway inflation and act as if you can borrow all you want with no consequence.

I see people say this a lot, which is odd since as far as I have seen it's one of the main points MMT people make. I'm not sure how one of the core insights of MMT has become the main criticism of it, it's kind of funny.

I suppose this is because some people have taken MMT to mean that debt doesn't matter, however that is really not at all what it says. I think a more reasonable conclusion of the system MMT describes is that how money is spent matters greatly (productive vs unproductive spending), the primary purpose of taxes is keeping inflation in-check, and real resources are critical to the health of a currency.

Exactly. The power of MMT is that it credibly explains what taxes actually are (not a source of government funding, but control rods for inflation and a constant source of domestic demand for the currency that helps maintain monetary sovereignty) and how to make sure spending is productive and not inflationary (e.g. through the currency issuer being the employer of last resort, etc.). You might not like it, but if you want to have a vaguely capitalistic system that has long term stability, you need to employ mechanisms like this.

I have not seen an explanation that makes the case for taxes as a good tool for controlling inflation. This is sort of what I mean by the discourse ignoring inflation. We already know what how inflation happens. MMT doesn't bring anything new to the table here.

> I have not seen an explanation that makes the case for taxes ... This is sort of what I mean by the discourse ignoring inflation.

I've not seen one that is properly based in reason either, most lines of thought in this vein typically use a strawman version of Say's law as the basis, following a deeply carved fallacy in economics from an early error of Keynes.

Taxes. Letting bubbles pop without bailing out the losers.

Both of those can be targeted in such a way as to deflate an inflated economy in a controlled way. The messaging is the hard part, as you're fighting against the emotions of a prideful workforce and the teeth-gnashing of the ambitious elite who see the stars as the literal limit. It is, however, possible to make sure everyone gets what they need to survive and even modestly thrive, while bringing the insanity of our current asset valuations and consumer prices back down to Earth, for a fraction of the cost of trying to keep the charade going indefinitely. You just have to throw rich people under the bus, instead of young and middle-aged workers whose purchasing power bleeds out every time we do yet another never-done-before thing to backstop failing banks and securities.

>That's a planned economy.

Man, do I have something to tell you about the FFR, porkbarrel spending, etc....

Taxes don't remove money from the supply unless the government is refusing to spend it. In which case that is just "reduce your budget and spend less" with extra steps. If you could do one you could do the other just as easily.

And letting bubbles pop isn't an MMT thing. It's bog-standard economic theory. The fact that politicians often don't do it has nothing to do with which theory they subscribe to. It's just cowardice on their part.

> In which case that is just "reduce your budget and spend less" with extra steps.

I'm pretty sure the extra steps are the point, in that I simply don't believe the MMT folks expect them to ever take place.

It's not a coincidence it's an American theory, from a country where it's politically almost impossible to raise taxes. Otherwise it would just be a roundabout way to raise taxes and pay for stuff in reverse order. But in fact it isn't "buy now pay later". It's "buy now YOLO LOL". But hey, maybe I'm missing something.

I don't know why one would think they would perform the extra steps any more than you would expect them to reduce the budget and spend less.

We don't have as problematic a deficit problem so long as reasonable sane people are running tr4e system and willing to turn on the printers when required so as not to generate excess inflation.

Many countries control their currency and can print money to pay debts, and can control their fiscal and monetary policies to best gain advantage for themselves. And they do.

US can do some things more, bigger, longer, etc., for various reasons. Just like Australia can do more, bigger, longer, etc., than Tonga. I don't really see anything profound being said here.

USA might be in some advantageous position now, and it might not always be in such a position, which is a pretty bland observation, but it also does not support the idea that they are living beyond their means today.

The reserve currency status makes all the difference on how much of all this you can do and under what conditions. That's the difference and that's why US had it so good for so long and now is due for such a large correction. Also, US is blessed with huge natural reserves, didn't actually waste it all on drugs and alcohol but did in fact created some of the best institutions in many areas so maybe it wouldn't be that bad if the politics don't make it bad.

It's not a reserve currency because the US decided it is, it's a reserve currency because everybody else decided it is. They decided that because they decided it was in their own best interest to trade in and maintain reserves of USD.

But whatever difference it makes is still just a matter of degrees. Countries keep reserves of and trade in currencies other than USD. Some get more benefit than others from this, and they all work to benefit from what advantage they can take from their own positions within their means to do so.

USD became the reserve currency in the Bretton Woods, when it was pegged to gold and major currencies were pegged to USD. This was pretty much demanded by US in the Bretton Woods conference.

In 1971 US unilaterally scrapped the Bretton Woods and essentially stole the gold reserves. Other countries protested heavily but could not really do much.

US then transitioned to the petrodollar system where demand for and value of the dollar is/was ensured by dollar monopoly in oil trade. This was done with deals with oil producing countries with varying levels of coercion.

Granted it is in a country's best interest not to piss off the world's largest military. Silver or lead is a decision too.

In other words, what I said was correct.

The gold reserves wasnt stolen - it is the US's gold that was acquired as a result of WW2. The revocation of the convertability of the US dollar to gold was suspended because it became impossible to honor it due to the increase in the amount of circulating dollars (what people generally call printing - it isn't "printed", it is debt created that produced more currency). And imho, while it seemed like other countries complained, i think this system allowed the world to move off the gold standard - a system which does not allow for flexibility.

And the idea that the US somehow enforces their dollar as being the reserve is moot - it is simply not true. Countries use the US dollar for trade because both sides of the trade believes that the other side cannot "cheat" using this currency, and implicitly believes that the US gov't won't "cheat" on behalf of one side either.

Unfortunately, this trust is being undermined from various sides, including the current US administration (and i have a hard time believing that the trump administration doesnt know this - it seems deliberate).

The situation was similar to there being a gold ETF that just decides to remove the gold peg and start diluting the shares. Whether that's essentially stealing or not is a matter of terminology IMHO.

US for sure didn't do it out of goodness of their hearts even if it led to arguably better monetary system. And US did get lopsided benefits out of it. Consistently recieving more goods than you give out is a huge benefit.

Is the USD due for a correction? I would agree the current policies do not help, however I have a hard time seeing any other currency actually replacing the dollar as the world's reserve currency.

If USD stops being global currency, there probably will not be just one that replaces it, but there will be several competing ones (USD still probably being there), for foreseeable future, with countries hedging bets.

It doesn't matter how much money you print if your debts are USD denominated. If for example Tonga has double their currency in circulation with a debt of Y USD tomorrow they will still owe Y USD and their currency will probably be worth half of what it was before.

In the case of the dollar if you suddenly double the supply it's not just the US national debt that is affected, it's all the secondary financial products indexed on dollar that are affected: debt from countries and private companies across the world, commodities and all transactions between countries not involving US that are dollar denominated. So in a way the value of a single dollar is diluted but it's diluted over a much bigger pool of participants.

That's the main reason printing money is cheaper to US as is reflected on the bond market, just look at supply vs inflation around the years following the global pandemic.

Living beyond their means is very relative. When credit is virtually free for years it makes sense to run 10x leveraged, the problem is when interest rate rises and you have to deleverage without showing too much that you don't have that much money as failing to do so could result in a death trap spiral.

When Aus print money they devalue the currency, spreading the cost over all Aus dollar holders.

When USA do the same, the non-USA dollar holders also take on the cost, same-same, excepting that is everyone around the World who trades in dollars. Which comes back to USA's military-industrial complex to some extent. It's like having the ability to steal a gram from every gold bar in the World.

> When USA do the same, the non-USA dollar holders also take on the cost

They don't. If they aren't holding USD or something pegged to it then it is not devalued.

Sorry, I made that hard to parse - "the dollar holders outside USA".

>For other countries USD is something they have to work for or sell something to acquire it. If they screw up they may end up in crisis being unable to obtain USD.

Right on the mark. This is happening to my country and it's an existential threat to my country's continued existence tbqh.

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