raghu wrote: > This deserves closer attention. Presumed infinitely-lived entities may > be able to roll debt over forever in principle. In practice however, > there are two problems. > > One is a liquidity crisis that will force monetization of debt > obligations one way or another (in the case of government by printing > currency). It is true that the US government because of the reserve > currency status of the US dollar has never had to face a liquidity > crisis. But a libertarian might argue that increasing debt loads make > this inevitable precisely by jeopardizing the reserve status of the > dollar in the long term. I find this argument also to be logically > unimpeachable (though perhaps beside the point - why is the reserve > status of the US dollar so desirable anyway except from the selfish > perspective of the US elite class?).
this is true, but even if the US$ loses its reserve status, the country is still the biggest military and financial power and can afford a lot. > The second, more subtle problem with the long-lived entities debt is > that over time, it starts to assume the properties of "real" money. > Treasury bills today arguably act as "near money" because they can be > readily borrowed against without haircuts. If you issue a huge amount > of new T-bills, you may not see an increase in money supply, but may > see an explosion in velocity. But will it have similar inflationary > effects? The answer is not obvious to me, but it seems quite > plausible. good point. I'd say that T-Bills are already being treated much like money (or as part of the monetary base). As noted, either we should stop paying attention to M1 or M2 as a source of inflation (as in monetarism) and heed the changes in their velocities. Even better would be to pay attention to aggregate demand, which is the proximate cause of inflation. In a serious recession and aftermath/stagnation/jobless recovery such as those hitting the US and world right now, however, inflation is no big concern. It's mostly a concern to those who don't care about unemployment. In general, the main _structural_ cause of serious inflation is unresolved political conflicts. The US level of these seems way below those of the countries that have had serious inflation in the past. -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
