There’S Absolutely No Crisis In The Public Debt Of The Usa

[Guest_FaFa!_*]

But a logical extension of "The US exports dollars and imports goods" is the point I made.

Do you agree that the US exports dollars and imports goods?

Yes

Do you agree that the US can't just print dollars to import whatever it wants?

No, it could do that but only as long as the US dollar was perceived by exporters to have value. We are effectively already in this situation. The US will only stop exporting dollars when there is an increased demand for US goods and much less demand for US dollars

If yes to both, let's explore the point at which the situation would lose balance and whether we are currently on a path to that scenario coming to pass.

This is a point that Galbraith addresses. Whilst the US can stop exporting dollars there is a great deal of foreign demand which is one of the limiting factors. Note the shock to many countries when they talked about tapering which Galbraith referenced. Globally the dollar is in very high demand and this won't end soon. It certainly won't end overnight if/when it does happen- it will be be gradual, like the decline of the pound over the 20th century. We are very far from this point, as he observes.

[zugzwang]

Yes

No, it could do that but only as long as the US dollar was perceived by exporters to have value. We are effectively already in this situation. The US will only stop exporting dollars when there is an increased demand for US goods and much less demand for US dollars

This is a point that Galbraith addresses. Whilst the US can stop exporting dollars there is a great deal of foreign demand which is one of the limiting factors. Note the shock to many countries when they talked about tapering which Galbraith referenced. Globally the dollar is in very high demand and this won't end soon. It certainly won't end overnight if/when it does happen- it will be be gradual, like the decline of the pound over the 20th century. We are very far from this point, as he observes.

The decline in demand for the dollar is part of the problem. The countries to which the US exports dollars are themselves saturated with debt. QE has elevated the price of financial assets everywhere because there's no productive demand for the additional dollars it creates. Fewer dollars created for export means fewer dollars to purchase US treasuries, pushing up the yield on US Treasuries and putting upward pressure on US interest rates. Higher US Treasury yields feedback positively into the value of the dollar forcing it higher still etc.

[Bloo Loo]

1. No, you called me a coward - back the assertion up

2. Why should I answer your strawman? Galbraith didn't discuss government spending or make that assertion. He observed that the US has the debt/deficit it has directly due to its role in the global system and this situation is sustainable as long as the system remains as is. Only weaker appears to have grasped that point.

there is no "role" as reserve currency.

If US are buying CHinese stuff, they could borrow Renmimbinbies or whatever they Chinese would accept.

And what exactly are the Chinese trading for these dollars...they have exchanged them for something else...the US must have good stock of those.

The issue is the trade deficit, which needs borrowed money to cover its losses.

The focus on the money rather than the movement of wealth leads economists to get the whole thing A about F.

[Executive Sadman]

Im not exactly sure what the point is.

Any country that prints its own money never has to 'default'.

Well, duh. Instead it steals the purchasing power and real wages of its populace.

If thats considered success, I really don;t see the difference between failure.

[wonderpup]

I think the point is that because the world economy needs dollars to function the US dollar is a legitimate export of the United States- they are supplying a market- for dollars.

[Guest_FaFa!_*]

The decline in demand for the dollar is part of the problem. The countries to which the US exports dollars are themselves saturated with debt. QE has elevated the price of financial assets everywhere because there's no productive demand for the additional dollars it creates. Fewer dollars created for export means fewer dollars to purchase US treasuries, pushing up the yield on US Treasuries and putting upward pressure on US interest rates. Higher US Treasury yields feedback positively into the value of the dollar forcing it higher still etc.

Yes, but this isn't happening yet is it? Look at the reaction to the end of tapering. Demand for the dollar remains strong.

[zugzwang]

Yes, but this isn't happening yet is it? Look at the reaction to the end of tapering. Demand for the dollar remains strong.

Demand might be strong in a crisis, but what about supply? What if the US deficit pulls in very sharply (below). There may not be enough dollars to go around when things next get tight?

Japan and China have immense dollar reserves. India, Indonesia, South Africa etc. not so much.

[zugzwang]

I think the point is that because the world economy needs dollars to function the US dollar is a legitimate export of the United States- they are supplying a market- for dollars.

Correct. And the US has to run a more-or-less permanent trade deficit to accomplish this.

[Bloo Loo]

Correct. And the US has to run a more-or-less permanent trade deficit to accomplish this.

So which came first, the trade deficit or the purchase of foreign bonds? ( monetising foreign assets)

It seems to me, the value of assets is far less than the issuance of dollars.

[zugzwang]

So which came first, the trade deficit or the purchase of foreign bonds? ( monetising foreign assets)

It seems to me, the value of assets is far less than the issuance of dollars.

The world economy is worth around $60 trillion and the US economy accounts for approx. 25% of that.

By comparison the US 'exports' around $500bn of dollars a year ($250bn less than in 2006), not that big a number when set against the size of the machine its lubricating, but absolutely indispensable to international trade (there are no other viable alternatives). The projected decline in US deficits implies a severe fiscal tightening in global trade going forward.

[Executive Sadman]

I dont get it. If there is such demand for dollars, why has the US central bank been the biggest buyer of debt for the last few years? Surely there is ample demand for US debt-money elsewhere?

[Bloo Loo]

The world economy is worth around $60 trillion and the US economy accounts for approx. 25% of that.

By comparison the US 'exports' around $500bn of dollars a year ($250bn less than in 2006), not that big a number when set against the size of the machine its lubricating, but absolutely indispensable to international trade (there are no other viable alternatives). The projected decline in US deficits implies a severe fiscal tightening in global trade going forward.

Sorry, think this is Ass about face.

Banks Monetise assets. thats what they do.

A central bank can issue all the dollars it likes against a willing borrower...say a Chinese business...it just needs suitable collateral. Trading has nothing to do with it.

[terryturbojr]

I dont get it. If there is such demand for dollars, why has the US central bank been the biggest buyer of debt for the last few years? Surely there is ample demand for US debt-money elsewhere?

There is ample demand. QE in the US isnt done because there is no demand for their debt. It's done because it gives the FED control of long term interest rates and mortgage rates.