It always gives me an ominous feeling to see these headlines. It's like we're walking out further and further on a frozen lake. "Hey, it's OK, the ice hasn't cracked yet! Let's keep going!"
Past performance is not a predictor of future returns.
It makes more sense to conceptualise it as the total size of a giant savings account run by the government.
We are walking further out on the ice but that is measured more in other ways - with harder metrics like inflation, access to cheap energy, resources, industrial density and capabilities and access to technology - not this headline number.
no, sometimes they literally do exactly that.
google for quantitative easing. that's what it is and it's a tool that can always be used by monetarily sovereign countries to bring bond interest rates down by as much as they want.
insolvency thus isnt possible.
You might want to look up Zimbabwe or Germany (after WW1). When your money becomes worth less than the paper it's printed on...
So, it's possible, and has happened before.
As soon as you start devaluing your currency to get out of debt, not so much. I believe Argentina is a fine example of that
when I said "monetarily sovereign" I think you probably didnt understand what that meant.
If a country ever decides to use your 'monetary sovereignty' they might as well just stop playing their debts as any holder of the debt will see that as the same thing. They're not getting their money back, or when they do they get it in a currency now worth a lot less. At this point you can say you're still solvent in the same way as you can say you did repay all your debts.
See https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_R...
It might seem like a minor distinction but it's actually very important. Gold can't be printed, whereas currency can be, so insolvency when your debts are denominated in gold is very possible.
Argentina is also another example of a country that suffered hyperinflation because it had debts denominated in something it could not print (dollars).
Whereas Japan had even higher debt / GDP than Argentina and got deflation instead.
However, it's a bit moot in my opinion. When the US owes me $100B and they pay that by 'creating' $100B through the central bank, in terms of value of the currency that's bad because there value of that payment dropped.
You can do this, it's what the quantitative easing policy did, but only in very limited amounts. If you were to do it because you were no longer solvent I would expect it to be the end of the trust and value of your currency. So in a sense it's not very different.
Maybe you can argue that if the alternative was complete insolvency then the Fed would feel obligated to comply, but you find yourself in a scenario where you're choosing between immediate economic collapse and rapid economic collapse.
It's the old saying, if you owe the bank $1,000 then you have a problem. But if you owe the bank a trillion dollars then the bank has a problem.
Especially when that trillion dollars was spent on an insane fleet of aircraft carriers.
The reality is that purposefully inflating your currency to reduce your debt burden is going to upset your creditors just as much as if you just defaulted on your debts, but will have the added affect of crippling your economy with inflation. Look at how much Americans freaked out over a year or two of 6% yearly inflation. How do you think Americans would respond to 30% *monthly* inflation like in Argentina or Turkey?
It's not like lenders won't notice if the USA tried to print its way out of debt.
2. Do you think Americans would tolerate having a government that purposefully suppresses their purchasing power through structurally low wages, and buying up foreign assets to supress the value of their own currency?
3. The part where China spends all their cash to buy US Treasuries to supress the value of their currency wouldn't really work as well for the USA when international trade is dollar denominated anyways, and the bulk of their GDP comes from domestic consumption.
4. The USA has a deficit. It'd need to borrow even more in order to finance the suppression of their currency, whereas China just redirects the money they earn from export surpluses.
1. Extremely painful to Americans, and became one of the main pillars of their election.
2. Nowhere near high enough to cause any reduction in the USA's debt burden.
I think modern Americans are way too soft to even imagine the sort of inflation that'd be required to erase their debts. Things have been too good and too stable for too long to understand what country-wide economic hardship would be like, and even if they somehow decided to choose that path, they'd panic quit it long before it was done long enough to have any effect.
For historical context, this is exactly what happened when the US was on the brink of leaving the gold standard.
> From 1963 to 1966, France secretly implemented Operation Vide-Gousset to repatriate 3,313 tons of gold reserves from the Bank of England and the New York Federal Reserve. It took over 44 boat trips and 129 flights to export the gold back to the Banque de France. Since France converted its dollar holdings into gold, the French made out well when the dollar fell during the Bretton Woods period and lost 96% of its value against gold. France then withdrew from the London Gold Pool in 1966 after recovering its gold holdings to force the US to endure heavier losses.
https://www.armstrongeconomics.com/markets-by-sector/preciou...
the scale of problem is much worse when Haiti was forced to pay France a debt for freeing itself of slavery. Having to produce physical goods and sell them is much harder than giving out paper or adjusting numbers
Inflating away your currency has the same effect with the added downside of destroying your economy simultaneously.
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In fact, the only time I can really see the argument for wanting the ability to inflate away currency to escape debt is if the country is weak and in a precarious enough position that they are legitimately worried that actually formally defaulting would lead to an invasion.