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Re: CBO: Federal Debt and the Risk of a Fiscal Crisis
I've been looking more at the Modern Money Theory (MMT). Stephanie Kelton has an excellent explanation of MMT in a tutorial she gave in April 2010. The audio and slides for this tutorial can be found at Are There Spending Constraints on Governments Sovereign in their Currency?
In her talk, and the follow-on questions from the audience, she explains fiat money, taxes, and the reasons for various national defaults (such as given in examples above).
Her talk is well done. I recommend it.
A transcript of a brief snippet of her tutorial can be found at Money and Coercion (Firedoglake).
I find MMT to be quite persuasive. In my view it's a much clearer and more accurate way of explaining fiat money, taxes, sovereign debt, inflation and such matters than the various main stream (and even iTulip) views we commonly use.
It's a quite different way of thinking of these matters than I usually see, and I have not done a very good job of presenting it so far. It's too easy to look at one of its conclusions from the perspective of our more orthodox economic theories and discard that conclusion as absurd or easily contradicted by history.
Nations do not default for financial reasons on their debt, if that debt is issued in their own fiat currency and they have not fixed that currency's exchange rate to some other currency. There is exactly one example of a nation defaulting on its debt that was issued in its own floating exchange rate currency. That exception is Japan in 1942, which decided for political reasons to default on whatever debt it owed to its enemies, such as the United States and Russia, with which it was at war. Japan defaulted for political reasons, not out of any financial necessity.
Of course, if you have some fixed rate exchange with someone else's currency or with a commodity such as gold, then you certainly can default, for want of enough of that external unit which it is beyond your ability to create without limit.
Fiat money is issued by a political power as part of its means of controlling the people and resources of its territory. The state issues a currency and then demands, typically under threat of force, payment of various taxes in that currency from its citizens. This forces its citizens to earn and value the currency at least in order to pay their taxes. The state pays for goods and services in that (now sought after) currency by way of controlling some of the resources and labor of its territory. It prefers for a political reason to keep the value of that currency relatively stable over time. The political reason is that its citizens usually prefer their currency to remain roughly stable in value. Such a sovereign state issuing its own currency with no promise of fixed exchange for a commodity or some other currency uses credits in that currency as score keeping device. It has no operational need to ever borrow in its own currency and no operational risk of ever running out of its currency.
Originally posted by Rajiv
In her talk, and the follow-on questions from the audience, she explains fiat money, taxes, and the reasons for various national defaults (such as given in examples above).
Her talk is well done. I recommend it.
A transcript of a brief snippet of her tutorial can be found at Money and Coercion (Firedoglake).
I find MMT to be quite persuasive. In my view it's a much clearer and more accurate way of explaining fiat money, taxes, sovereign debt, inflation and such matters than the various main stream (and even iTulip) views we commonly use.
It's a quite different way of thinking of these matters than I usually see, and I have not done a very good job of presenting it so far. It's too easy to look at one of its conclusions from the perspective of our more orthodox economic theories and discard that conclusion as absurd or easily contradicted by history.
Nations do not default for financial reasons on their debt, if that debt is issued in their own fiat currency and they have not fixed that currency's exchange rate to some other currency. There is exactly one example of a nation defaulting on its debt that was issued in its own floating exchange rate currency. That exception is Japan in 1942, which decided for political reasons to default on whatever debt it owed to its enemies, such as the United States and Russia, with which it was at war. Japan defaulted for political reasons, not out of any financial necessity.
Of course, if you have some fixed rate exchange with someone else's currency or with a commodity such as gold, then you certainly can default, for want of enough of that external unit which it is beyond your ability to create without limit.
Fiat money is issued by a political power as part of its means of controlling the people and resources of its territory. The state issues a currency and then demands, typically under threat of force, payment of various taxes in that currency from its citizens. This forces its citizens to earn and value the currency at least in order to pay their taxes. The state pays for goods and services in that (now sought after) currency by way of controlling some of the resources and labor of its territory. It prefers for a political reason to keep the value of that currency relatively stable over time. The political reason is that its citizens usually prefer their currency to remain roughly stable in value. Such a sovereign state issuing its own currency with no promise of fixed exchange for a commodity or some other currency uses credits in that currency as score keeping device. It has no operational need to ever borrow in its own currency and no operational risk of ever running out of its currency.
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