05-17-2016, 12:00 PM
(05-13-2016, 04:24 PM)Kinser79 Wrote: Well here's the thing. To a degree both are right. Using MMT one can indeed spend like a drunken sailor (if they are the currency issuer) and provided their debt is denominated in the currency they issue can never go bankrupt. However, when over used, others may just decide that they don't want that debt because they will just be paid off with inflated paper.
In the case of Greece the US can't become Greece because we issue debt in our own currency and pay for it in our own currency. At the same time, should the ability to buy oil ever switch to a different currency, or basket of currencies, or a different commodity then there is no reason to take on US dollars.
More likely, would be blowing up a huge bubble which will implode.
You're getting closer, but not quite there yet.
There actually is no real monetary or fiscal reason for a monetary sovereign to sell debt. The spending comes first, the debt instrument comes after - it really is just a service of providing an interest-bearing security to those holding the spent money. When there is a real difference between holding non-interest bearing security (e.g. US dollars) and interest-bearing security (e.g. US Treasuries), that can incentivize a holder of currency to put it into Treasuries - it's a way to mitigate spending and thereby inflation. Of course, a much more effective and efficient way to reduce spending/inflation is for the central government to reduce its own spending and/or increase taxes on everyone else - politically, difficult, and that's why we all have such a fixation of the near-joke of monetary policy.
As to the dollar losing its appeal, do you think it's better for oil producers to sit on millions of barrel of black goo held in expensive supertankers off shore just waiting for a natural disaster or ISIS to spill it all over their shores? If you want to sell the stuff and keep your population happy, you're going to have to take somebody's currency one way or another. If you take the Chinese Yuan instead of US dollars, you're just going to have to buy some Chinese stuff or convert it n the FX markets so you can buy some US or Euro stuff. It all works out in the FX market. The "world reserve currency" is just the monetary sovereign who most other monetary sovereigns trade - it's not going to change trading; it's the other way around. As long as we have things to trade, others will take our currency and be happy. And if they don't, who cares? By many measures, the US is nearly a self-contained economy. The trade numbers look big because they are big, but relative to domestic trading within the US, peanuts.
Krugman and other post-Keynesians get pretty close to reality - at least a lot closer than those that believe in fractional reserve lending and laissez faire fantasies.