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View Diary: Insolvency, tax cuts, military spending and social security (188 comments)

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  •  Kindness of strangers (1+ / 0-)
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    Calgacus

    "We don't depend on foreigners to buy our debt."

    You jest. I think those dollars we send abroad to buy little things like, oh, barrels of oil, are instruments of debt that we are depending on foreigners to accept. They buy our debt with their oil (and their electronics components, automobiles, rare earth minerals, clothing, etc.). And when they buy our 25-year bonds, we take the money, spend it immediately, and leave it for future generations to worry about paying it back. As for the Fed setting rates—it does that by putting bonds up for auction. If they sell, fine. If they don't, then the rates we pay go up. Where do you imagine the rates that are set come from? If it's just up to us, whatever we want, why don't we set all bonds at .001%?

    •  Some of what you say sort of true, sort of not (0+ / 0-)

      MMT, real economics, incorporates your valid insights. And clears away the insane Big Lies so prominent in neoliberal era quackonomics.

      It's quite true that the dollars we send abroad are debt instruments, and in that foreigners are sending real goods in return for IOUs/debts, they are perhaps doing us a favor, being kind, e.g. if they are giving us ridiculously low prices for their real stuff.  

      Foreign dollar savings does in the short run increase the value of dollars, like any saving. It is deflationary. So much so, that it causes unemployment and interferes with the process of wealth creation. But our only implicit responsibility to foreign or domestic savers is that the dollars they save remain a decent store of value, do not inflate.  That is the only way that "future generations pay back".  "Paying interest" is a joke. It's just exchanging one kind of money (bonds) for another (currency).

      The solution to the problem of saving-->deflation-->unemployment is to simply print the money or bonds, to run a deficit to accomodate this saving. This is not inflationary or cheating savers. The saving itself is what depreciates the value of the saving in the long run, by the malign effects of uncountered deflation.  The worst thing we can do for future generations is not print the money and thereby wreck the real domestic economy.

      If it's just up to us, whatever we want, why don't we set all bonds at .001%?

      Because of psychotic miseducation, psychotic beliefs, complete ignorance and revision of history, propagated through the media and academic garbage "economics". The bizarre belief that low rates, "printing money" is hyperinflationary. The wacky idea that government spending should be matched 1-1 with bond issuance.

      Governments can & often have set bond rates.  The Australian "Tap System" until the 80s. The  US did during WWII, til 1951. Japan right now. The US right now, by "QE".

      Governments set interest rates exactly the same way they set the value of hundred dollar bills in terms of fifties or ones. They trade two fifties or a hundred ones for one Benjamin. If they decided they would always trade 1 Benjamin for 3 Grants or 150 Georges, then a Benjamin would be worth $150, irrespective of the number on the bill. The government wants some rate to be .001%? The Fed just buys enough T-bonds to drive up their price = lower the rate to that level. This is just counteracting the silly, unnecessary "intervention" procedure of selling the bonds, pushing up  rates for no reason, in the first place.

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