
Europe's Wile E. Coyote Moment - llambda
http://intellectual-detox.com/europes-crisis/
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nhaehnle
The first two or three few paragraphs of this article is something that
_everybody_ needs to understand. The US debt is just another form of money,
and is completely risk free because the US government is monetarily sovereign.

The same does not hold for Eurozone governments, hence the debt crisis. In
fact, Eurozone governments are more akin to US state governments, and the
debt-to-GDP ratios of US states are _much_ lower than those of Eurozone
members. The debt crisis should not have been a surprise to anyone, and the
fact that it was shows how little the monetary system is understood even by
most economists.

That said, I disagree with the last statement made in the article. There is in
fact a very good reason for governments to go into debt at least under current
institutional arrangements. (Monetarily sovereign) government debt is just
another form of money, and in fact money is a debt of the government (via the
central bank, which is really just a branch of the executive when push comes
to shove). And the private sector really likes holding on to money.

Private entities that are economically successful like to collect those shiny
numbers in their bank accounts, and hence they accumulate monetary assets
without spending them. They have lots of income, but spend only a part of that
income. This means they effectively act as a money sink. The money that is
kept out of circulation needs to be refilled somehow, and government is the
only entity that can do so.

So there are really three options: 1) Accept that, under current institutional
arrangements, the private sector accumulating monetary assets means that the
government has to go into debt; and accept that this is not a bad thing.

2) Change the institutional arrangement so that the government can just
finance its deficit by creating money outright (and use taxes to control
inflation).

3) Raise taxes on wealth to the extent that the accumulation of assets in the
private sector simply is not possible anymore.

Personally, I believe 1) and 2) are the best options. 2) has the added
benefits that it eliminates interest payments by the government; I consider
this a benefit, because those interest payments tend to be a hidden subsidy of
the rich.

~~~
vrotaru
> and is completely risk free because the US government is monetarily
> sovereign.

So what? Ctrl+P is cheap, but that's besides the point. The reason USA is not
Ctrl+P-iing now, but is borrowing instead should at least serve as a hint.

My point: If it is OK to Ctrl+P at later date as the Is-Safe-To-Borrow
propaganda wants us to believe why is not safe to Ctrl+P now? Why borrow when
you can print?

So, no. No such thing as free cookies or risk-free debt. At least this side of
the Jupiter orbit.

Yes, it would be a different endgame, as the one for Greece, but this is not
the same as risk-free.

~~~
nhaehnle
_The reason USA is not Ctrl+P-iing now, but is borrowing instead should at
least serve as a hint._

Actually, the US _is_ Ctrl+P-ing now. That's what QE is all about: from the
perspective of the private sector, QE is equivalent to the government creating
money out of thin air to pay back the debt. This is only obfuscated a bit by
the fact that treasury and central bank have separate balances.

 _Why borrow when you can print?_

My guess is a combination of (a) most people are afraid of change (case in
point: you), (b) the people owning treasury bonds effectively get a hidden
subsidy via the interest paid by government, and (c) the problem is framed in
such a way that most people never even question the existing institutional
arrangement - and when they do, they tend to do it in terribly uninformed
ways.

 _No such thing as risk-free debt._

Please explain under which conditions the US government would become unable to
fulfill the promises implied by its debt.

~~~
vrotaru
I agree with a lot of what you said above. I just don't think it changes the
general picture that much.

> Please explain under which conditions the US government would become unable
> to fulfill the promises implied by its debt.

At the point where the choice would be a) currency destruction (10-15%
inflation), b) default.

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zvikara
cache:
[http://webcache.googleusercontent.com/search?q=cache:rZNS0A5...](http://webcache.googleusercontent.com/search?q=cache:rZNS0A55UXQJ:intellectual-
detox.com/europes-crisis/)

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white_devil
The article didn't open, but just in case, it's not only Europe that's headed
off a cliff. It's the whole Western world.

