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February 18, 2014


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Sanjay Mittal

Re the CBO's claim that the deficit is "unsustainable", the CBO is composed of economically illiterate, mentally sub-normal neanderthals. Or as Dean Baker put it, "In elite Washington circles, ignorance is a credential".


Surely and most worryingly it's that 'cultural hegemony' which is most concerning to us all- for America is often seen as some ideal type of society with cereal packet families, vast wealth and beautiful people all living like the Kardashians in a materialist heaven = Baudrillard's 'Hyper-reality'if ever I saw it.

It comes as quite a shock when you tell the teenagers here about the US murder rate, its drugs misery , its drop outs on the streets, its 'have you got medical cover as you are wheeled into A&E?'. But all of its drama and showbiz in an non-political world where the poor and sick and disadvantaged are invisible and appalling inequality is snow pegged out of the entertainment world.


"why do non-US investors hold $5.7 trillion of low-returning US Treasuries? From a narrow economic perspective, the answer's not obvious"

Chris - you answer your own question. The large foreign holdings of Tsys are a function of the persistent current account deficits; and the latter are a function of the Bretton Woods II system.

Why is the USD the international reserve currency? Other factors are more obvious than language.

(1) many (but ever fewer) countries want to pick a 'neutral' currency for trade, and the USD is the most obvious owing to its size

(2) strong rule of law and decent judicial support for contracts


@Sanjay Mittal - you may be right that the CBO are ignorant, but the relevant fact is that international investors don't perceive the US debt arithmetic to be unsustainable. I don't imagine many of them read CBO reports. They just assume the US will cut spending or raise tax when the time comes. Entitlement reform is just a distributional issue - not a question of solvency.


"Entitlement reform is just a distributional issue - not a question of solvency."

Do the American voters agree with this rosy view? You could have said this about France before the revolution. Surely the wealthiest county in Europe could not collapse in revolution and civil war over who should pay the bills?



"Entitlement reform is a purely distributional matter" - this is just an analytical fact.

All I'm saying is that the US will need a reconfiguration from a distributional perspective, which could involve entitlement cuts, but could equally involve higher taxes (eg Georgist land taxes), or cuts in non-entitlement spending such as defence.

I'm not saying the resolution of the distributional readjustment will be easy, just that the difficulties don't entail insolvency. Just because the French state presumably defaulted on its foreign debts in 1789, doesn't imply that any other redistributional shift would involve the same. For one thing, the shift could be gradual in the case of the US, and not sudden.

John M

I suppose those who express concern about US insolvency and the sustainability of our debt aren't lying -- not even most of those whose views depend on the President's party (D or R). (That's probably just a consequence of group-think or herd mentality.) They probably just don't realize that it's impossible for the US to become insolvent -- run out of dollars to pay its debts and expenses.

If the President had minted the trillion-dollar coins, and settled our debt-ceiling crises once and for all, at least some persons would have understood what a fiat currency system means. To a currency creator, the currency resembles coupons, or points awarded in football games. (Try shouting about football stadiums' unsustainable deficit trajectory in awarding points.)

I don't know the consequences of a common understanding of this point. They could be disastrous -- returning to a gold standard, or alternatively thinking we could create any amount we want without regard to inflation or deflation. Or they could be beneficial -- if it's understood that too little currency-creation would be deflationary and undermine economic growth, that too much currency-creation would be overly inflationary, and that taxation is essential for supporting the currency value (and only that).

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