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Frankly, you just sound like a tits and beer liberal, if you're not mainlining Mises to the degree that it affects your metaphysical outlook, you're not really doing a libertarianism in my opinion. But that's a fine and reasonable position. I was once just such.
"It says here in this history book that luckily, the good guys have won every single time. What are the odds?”
I notice you're stalling on answering the question, and trying to get into procedural matters. Nobody gives a shit what the US' opinion of their own system is, they give a shit about the real economic effect of US debt being toilet paper.
Moving the ball is not making it disappear. I too can borrow to myself infinitely in made up me-bucks. But in the scenario where US debt is no longer the world's reserve currency, that doesn't translate into any ability to buy goods.
"Primary dealers" of monopoly money can surely not fail in delivering it to the US government, but how exactly does that translate into food rations for GI?
Not sure you're following the point, that was saying that we have a goofy system precisely because different people have been trading off who wins & loses all the time. Especially in the 19th century the winners didn't exactly know what they were doing (constant boom & bust cycles with many severe depressions).
The government prints up some IOUs called treasury securities, and swaps them for some other government IOUs called central bank reserves, in a primary dealer auction completely unencumbered by "people choosing to buy debt". Then they use those IOUs (widely called 'money') to spend and/or give to people out in the economy, who are willing to trade goods & services for those IOUs. These government IOUs are valuable because they're the only way to settle your taxes that the government declared that you owe.
If that sounded like gibberish to you, well I already said most people don't understand the monetary system and never learned about it. If you think there's "a" world reserve currency conferring special status to a single country, that does explain where you're at, but the basic logic I just laid out also applies to other countries that issue their own currency.
What if people refuse to use your currency to trade goods and services? What if they tell you to fuck off when you ask them to pay you your own fun bucks? And I'm not just talking about Americans that you have over the barrel of your gun. I'm talking about the rest of the world.
This entire scenario is specifically about what happens when your power to enforce the privilege of exchanging debt for ressources ends.
What happens when US treasuries are no longer viewed as the most risk free investment vehicle in the world and are replaced by something else and demand craters?
The answer is usually that you'll have to dip into foreign currency reserves or sell hard assets, but what do you do when you run out?
What if I start paying your military men in the new harder currency to loot your country?
Money is debt. So that would be inflation, which was definitely covered from the start. That is absolutely the relevant constraint on government deficit spending.
As far as the exchange rate goes: in the very worst case scenario of your exchange rate suffering, you can always at least import as much as you export. That's true whether you even have your own currency or not. But if you have a currency that foreigners are willing to save in (a world 'reserve currency', which basically all currencies are to different degrees), that just allows you the luxury of importing even more than you export (not necessary, but can be nice, although then your exporter businesses might start bitching about your country's 'trade deficit', so it's not all roses).
As I tried explaining procedurally above, it doesn't matter a single iota whether there's any market demand for treasuries. That's the charade part of it. The government effectively is just printing money as they deficit spend, and they always have been. They print the money, they set how much interest money pays (if any), and we have to get the government's money regardless of anything, in order to pay taxes.
If the king wants something done, he levies a tax on the subjects. Then he prints up some tally sticks, and pays them out to people to do the thing. Then they pay their tax, and he burns the tally sticks. Same with colonial american paper money: levy a tax, print up some stacks, get the work done, then shred the money as it gets paid back in taxes.
So you're just going to repeat back MMT to me as if I haven't read Tcherneva and never heard of chartalism? Come on, at least engage with the idea of a debt crisis. Do you really think everyone from Louis XVI to Hindenburg was too stupid to realize they could just raise taxes to lower inflation? The political expediency of reasonable policy matters, and all I see from MMT proponents is a total faith in the impossibility of default or hyperinflation.
I'd like you to at least acknowledge recent history, seeing as though your model is supposed to model it.
This just isn't true. I've actually lived in countries where that wasn't true. Getting your state looted by foreign creditors is a real thing that really happens to people. Ask any Russian.
At some point people just start demanding real collateral. How does MMT explain the Pepsi fleet exactly?
On the other side of the dunning-kruger scale, this is loudly announcing 'I looked up the wikipedia page'. And I'm not just repeating MMT back to you. I answered your precise first question by showing you how the actual government finance operations work in the US, with a link to an official testimony people find a bit shocking and interesting if they know anything about what's being discussed, and you thought that sounded like monopoly money that 'nobody gives a shit about'. You can't really be helped if you don't know the first thing about any of this.
Involuntary default in your own currency that you issue? Definitely impossible. Inflation? I already started with that covered as the real constraint.
Ok, we're nearly up to countries can go to war with each other. Can you try to tie this back in to the fiscal responsibility of US republicans & democrats? Do you have any prediction about the timeline of the US becoming Russia?
By which I mean that the real world implications of monetary policy is what matters.
You'll have to forgive me that I'm frustrated that every single time I try to discuss this topic with MMT advocates they do this same exact thing of just trying to discuss the accounting instead of what the policy actually results it empirically. It's about as enjoyable as trying to get Austrians who rant about praxeology to acknowledge empirical evidence.
Who said anything about involuntary? You can default or print your way out, that's the choice, but what I'm trying to get you to acknowledge is the process up to that point. What leads you to that choice?
High enough deficits mean that the state can no longer borrow enough value to sustain itself because the rising inflation requires high interest rates and thus ultimately create a dilemma between letting inflation run and nullify the debt and wipe out personal wealth or default and start having to sell off assets to finance basic services.
Since both of these create massive political instability, good government requires avoiding the circumstances that create this dilemma, and thus a limit on non-productive spending.
Both Ds and Rs are currently committed for political reasons to infinite amounts of such non-productive spending and that's a bad thing.
10 to 30 years, 1.5 wars with Iran or 1 total destruction of a carrier group.
Assuming no unpredictable technological innovation or total war, of course.
The point is specifically about how the real-world accounting works for banking and government finance. MMT isn't a policy, it's describing the system as it already works today and how it's worked throughout history. And monetary policy is barely relevant to it. If assets and liabilities and balance sheets are not your interest, but you feel obligated to engage for ideological reasons with your own hypotheticals about radically changing the macroeconomic management from what's been working because you have your own prediction of impending disaster, I can indeed imagine that's frustrating.
MMT "advocates" are trying to explain how it works and why it has continued working despite people having your same fears for centuries, so that you can join us in sleeping soundly at night instead of despairing. FCFromSSC is not my 'opponent' in the slightest.
Well anyone can voluntarily do anything stupid. There can be a wide range of competence in macroeconomic management. The unsustainable argument is only strong if you think the system is headed toward involuntary crisis.
Voluntarily choosing to default on your own currency debt? Incompetence, not understanding the accounting, malice or kingly inconsideration maybe. In the US, the existence of the debt ceiling law for example is partially incompetence/misunderstanding, but mostly kept around as a political weapon to use against the opposing party in power.
OK solid. That's what I opened with in the very first post: good macroeconomic governance entails not causing runaway accelerating inflation by making the deficit too large. And we judge by outcomes, we don't get sidetracked counting the number of digits or commas.
This is where we disagree and where MMT starts to have prescriptive implications. It's not really an economic disagreement, it's a political one about the implications of economic theory.
I believe that MMT provides the perfect framework to justify irresponsible fiscal policy.
For instance, one key insight is that unlike personal debt, state debts are not something that actually has to be repaid in full. This is of course true. Generally destroying such arguments as the idea that taking on debt is spending one's children's money in advance and so forth.
The truth of the matter, as we seem to agree, is that, like regular investment debt, this depends on the ability of the borrower to use the funds to create enough value to outrun interest.
But putting this in the hands of politicians, who are by constitution convinced that all the programs they support are good investments, allows them to argue for infinite amounts of debt, which is not sustainable.
Keynesianism has this same problem: the general idea of manipulating spending to soften the blows of the business cycle can work on paper, but in practice people use it to justify loose policy in times of crisis but never the austerity in times of plenty required for the math to work out.
For macroeconomic theories to be useful tools of policy, they have to be usable by the flawed human beings that make the decisions, otherwise they must remain descriptive tools more appropriate to history than to the future.
I claim that the range of competence you think is wide is not so wide. That it ranges from the mildly irresponsible to the catastrophically incompetent, and that men must be guided by strong signals to avoid debt crises, lest they slowly build catastrophies to leave to their successors such as rulers of the West have been doing since people gave up on ever solving the debt issue in the 90s.
I agree the debt ceiling laws are silly in a sense, but they are at least an attempt to provide such a signal, one that has grown more silly ever since we decided to ignore and abandon the much more serious signals given by the gold standard (which of course had its own share of issues too).
So as you seem to be an advocate of using MMT to formulate policy, I ask what your solution to this problem is, and if you've seriously thought about it. That's what I have been asking since my first comment, thought I suppose unclearly. It's easy to get lost in sidebars in such arguments.
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