Friday, October 19, 2012

Pascal-Emmanuel Gobry — No, The United States Will Not Go Into A Debt Crisis, Not Now, Not Ever

If there’s one article of faith in Washington (and elsewhere), it’s the idea that the United States might get into a debt crisis if it doesn’t get its fiscal house in order.
This is not true.
The reason why it’s not true is because we live in a fiat currency system, where the United States government can create an infinite number of dollars at no cost to meet its obligations. A Treasury bill is a promise that the government will give you US dollars–something that the United States government can produce infinitely and at no cost.
That’s the reason why interest rates on United States debt have only gone down even as the debt has ballooned. That’s the reason why Great Britain has very low rates on its debt despite having very high debt-to-GDP. That’s the reason why Japan has an astounding debt-to-GDP ratio and still enjoys some of the lowest rates ever. Investors have bet for so long that there would be a run on Japanese debt and have ended up so ruined that in financial circles that trade is called “the Widowmaker”.
Forbes | Business
No, The United States Will Not Go Into A Debt Crisis, Not Now, Not Ever
Pascal-Emmanuel Gobry | Contributor
(h/t Dan Lynch posted in MMT DALLAS DEFICIT OWL COMMITTEE)

19 comments:

Butch Busselle said...

Wow! Quick and to the point, published in a mainstream mag. Here's hoping for some new mmt'ers...

Tom Hickey said...

Interestingly, the last part of the post is about the author being a conservative and telling fellow righties that they don't get it.

None said...

Well the MMT response to an economy nearing full employment and the possibility of inflation is not to bring up the question of a reserve currency. The answer is reduce spending and/or increase taxes.

Tom Hickey said...

The author is a conservative and he betrays that in the second part where he gets into the reserve status of the USD thing. Clearly, not MMT.

The Arthurian said...

I am SO not comfortable with the idea that the government "can produce infinite" money is a solution to anything.

Unknown said...

Arthurian

it just means interest rates don't have to go crazy as they have done in the eurozone, where governments have to beg the banks for mercy. It doesn't mean print ad infinitum.

STF said...

Nobody said it was necessarily a solution. What we say is it is a fact, and analysis should proceed from statements of fact, not falsehoods like "we're out of money" or "the US is the the next Greece".

The Arthurian said...

STF: "Nobody said it was necessarily a solution."

But Pascal-Emmanuel Gobry said: "A Treasury bill is a promise that the government will give you US dollars–something that the United States government can produce infinitely and at no cost."

It sounds to me like Pascal-Emmanuel Gobry is offering infinite money as a solution.

Come to think of it, Scott, if you are writing of "falsehoods like 'we're out of money' " then you are uncomfortably close to offering infinite money as a solution, too.

Art

geerussell said...

I'm going to offer an assertion. The apocryphal "infinite money printing is a no-worries-be-happy solution to our problems" argument exists only as a concern troll.

This assertion is easily refuted with examples of anyone actually making the argument. I haven't seen any but I'm always open to evidence of a sighting.

Greg said...

"But Pascal-Emmanuel Gobry said: "A Treasury bill is a promise that the government will give you US dollars–something that the United States government can produce infinitely and at no cost"

In what way is Pascals statement false?

What else is a Treasury Bill promising?

What is the "cost" of paying those dollars, where do they come from?

WillORNG said...

It simply needs the rider that the limit on deficit's meeting private and foreign net saving desires is the real capacity of labour and capital available to "soak up" the demand...

STF said...

"the gov't can produce infinite money" is a statement of fact--being against it is like being against gravity. If you don't think it's a true statement, then please defend your position--which you haven't yet attempted.

If you're opposed to the statement, then you're arguing (like Paul Samuelson) that we need to lie to people about how the system works.

Perhaps you don't see any good coming out of policy makers and the public knowing how the system works. Ok, fine, you're entitled to your opinion. But at least admit that you prefer it that economists, the press, the govt, etc., lie to the people about how the monetary system works. That's what you're suggesting here, in fact.

Tom Hickey said...

Let's let the Maestro speak: Alan Greenspan, Maintaining Financial Stability in a Global Economy (Aug, 1997) at a symposium sponsored by FRBKC:

Let me begin with a nation's sovereign credit rating When there is confidence in the integrity of government, monetary authorities— the central bank and the finance ministry—can issue unlimited claims denominated in their own currencies and can guarantee or stand ready to guarantee the obligations of private issues as they see fit This power has profound implications for both good and ill for our economies

Central banks can issue currency, a non-interest-bearing claim on the government, effectively without limit They can discount loans and other assets of banks or other private depository institutions, thereby converting potentially illiquid private assets into riskless claims on the government in the form of deposits at the central bank.

That all of these claims on government are readily accepted reflects the fact that a government cannot become insolvent with respect to obligations in its own currency A fiat money system, like the ones we have today, can produce such claims without limit To be sure, if a central bank produces too many, inflation will inexorably rise as will interest rates, and economic activity will inevitably be constrained by the misallocation of resources induced by inflation If it produces too few, the economy's expansion also will presumably be constrained by a shortage of the necessary lubricant for transactions. Authorities must struggle continuously to find the proper balance

The Arthurian said...

STF, you are right: I have by no means defended my position. I have not even stated my position, other than to say I am not comfortable with Gobry's idea that creating "an infinite number of dollars" might be a solution to anything.

You then denied that anyone "said it was necessarily a solution". I am not sure what the word "necessarily" is doing in your sentence. Either infinite money IS a solution or it is not.... Either it is OFFERED as a solution or it is not.

I then quoted Gobry from Tom's post, the part where he seems to offer infinite money as a solution. STF, you then responded by trying to assign to me thoughts that are not mine, and I shall not address such matters.

I will point out, however, that the statement "the gov't can produce infinite money" is not the "statement of fact" you say it is. For after they have printed an infinite amount of money, they might still print another dollar.

And if you can print N+1 dollars, then N dollars is not infinite.

STF said...

I don't agree with your interpretation of his quote. Sounds like a statement of fact. Where did he propose the govt actually print infinite money? He just says it can always service it's debts. Not the same thing at all.

Glad you agree with the statement of fact, though, which is the more important point. If I'm wrong and your interpretation is the correct one of his statement, then I change my position on it to agree with you.

paul meli said...

"I will point out, however, that the statement "the gov't can produce infinite money" is not the "statement of fact" you say it is. For after they have printed an infinite amount of money, they might still print another dollar."

Art, I know you are a mathemetician, but I think you've made a semantic mistake here in converting the abstract to language.

To say the government can produce "infinite" money is to say it can print without limit. That's all it means.

You are claiming that N is infinity. Then there is no infinity +1. How about infinity *5? is that a real number?

My point is you are splitting hairs that don't need to be split. The meaning is clear.

The Arthurian said...

Yeah paul, that was pretty lame. You're right 'bout that. Oh, well :)

paul meli said...

"Yeah paul, that was pretty lame. You're right 'bout that. Oh, well :)"

Hey, if we never made a mistake we would be among the leaders of the free world…Oh, wait

Unknown said...

The US state is still constrained by the world using the dollar as reserve, and hyperinflation.

The state can potentially default if the choice is between default and save the currency, or inflate and collapse the currency.