[jjeaff]

I can tell you some reasons it's not bad.

You commonly hear about how we are indebted China or whoever and because of that, they wield power over us.

This isn't loan shark style debt. The US holds all the cards in this case. It's sort of like, the mantra, "if you owe the bank millions of dollars, it's your problem". If you owe them billions, it's their problem.

The US could even pay back that debt with money they themselves issued if needed.

[n0t-satoshi]

"The US could even pay back that debt with money they themselves issued if needed."

Hyperinflation is effectively defaulting. No one will give credit to those who pay with Monopoly money.

[zazagura]

You are naive.

Argentina is a serial defaulter, every decade or so it defaults on it's debt.

The next day creditors line up to give it money again.

It's hilarious.

https://ftalphaville.ft.com/2019/04/30/1556614127000/Why-inv...

[toyg]

Ish. They still have high inflation levels (which hurt the working classes), low economic activity, and struggle every day.

I agree that state-level credit dynamics are unique, but playing like they don’t matter at all typically lands one into trouble.

[RobertoG]

The problem (one of them) with Argentina is that they don't have industry, so simple like that. That's the trap where many countries are stuck.

Because in order to develop an industry you need investments and protection of the new industry until it's able to compete. Investment can't be only in your currency because you need to import things for the new industry. And protection is "discouraged" by those that are already developed (1).

(1)[pdf] - http://www.personal.ceu.hu/corliss/CDST_Course_Site/Readings...

[RobertoG]

The important thing about external debt is: is the debt denominated in your currency?

Because if you are Argentina (a country with little industry and exports) and you get a debt in Dollars in order to be able to import, of course you can get in the situation where you have to default your debt in a foreign denominated currency.

[macspoofing]

>The next day creditors line up to give it money again.

At what rate? In what currency?

[conanbatt]

The debt pays very high interest in argentina.

[jganetsk]

Are you sure issuing money to pay off debt leads to inflation? Citation needed. I assume you would cite the quantity theory of money [1], which says that "the general price level of goods and services is directly proportional to the amount of money in circulation, or money supply."

Using the quantity theory of money as your model, how do you define the size of the money supply? Do you include or exclude government debt? It is a highly liquid financial asset, so maybe it should be included. Maybe not at par, but at some discount.

If it is included at par, then monetizing the debt (issuing new money and buying debt with it) [2] does not change the money supply. Here's the math: money supply is M + D (money + debt), and you monetize X dollars of debt, then the new money supply is (M + X) + (D - X), which is equal to M + D. Therefore, according to the model, we should not expect inflation.

Note that, in the US in the last 10 years, the Federal Reserve monetized trillions of dollars of debt [3]. Has there been hyperinflation, as you would claim?

[1] https://en.wikipedia.org/wiki/Quantity_theory_of_money

[2] https://en.wikipedia.org/wiki/Monetization#Debt_monetization

[3] https://en.wikipedia.org/wiki/Quantitative_easing#US_QE1,_QE...

[doubleunplussed]

I forget where I read it, but I found it convincing, that printing money to pay debt to large investors does not cause significant inflation. The investors will not spend the cash on consumer goods, they will probably just loan it right back to you and the money remains locked up and not circulating in the economy. There ought to be nonzero inflation as a result, but only a tiny fraction as much as if the money were injected at the bottom where people are more likely to spend than save.

[jganetsk]

The idea that a government with control over its own currency can print money to pay debt without significant inflation is a part of Modern Monetary Theory. Here's a blog post explaining it: http://bilbo.economicoutlook.net/blog/?p=31715

[RobertoG]

Most (all of them?) episodes of hyperinflation, including the infamous Weimar Republic and Zimbabwe, are not caused by "printing" too much money, but by a fall in the productive capacity of the economy.

Here, Zimbabwe for hyperventilators:

http://bilbo.economicoutlook.net/blog/?p=3773

[Retric]

That’s misleading. Without creating an ever larger money supply hyper inflation can’t continue. Similarly, hyper inflation requires the state to continue to exist.

For example various currency’s have dropped so their only value is as a novelty item or physical object. But once it hits that point it’s value can’t continue to fall.

[RobertoG]

We are talking about causality here.

In my opinion, it's misleading to insist that the cause of hyperinflation is "printing" money and, never mention, that the real cause is the falling in the productive capacity of the economy.

For instance, the narrative about the Zimbabwe crisis is always the same: The government just went crazy and started to print money.

In my opinion, that's a totally dishonest narrative (and politically motivated maybe?), when what really happened is that they destroyed their main productive activity (agriculture).

>>"Similarly, hyper inflation requires the state to continue to exist."

Well, yes, of course, are you saying that the state stopping to exist would be a better alternative?

[azernik]

The drop in productive capacity is the motive, but not the means; the printing of the money is an action to prop up state finances with the direct effect of causing hyperinflation.

i.e. the Zimbabwe narrative should be: the government tried to dig itself out of a hole by printing money.

Similarly, the German government printed money in the 1920s to try to keep up with reparations payments which were larger than the economy could bear through taxation. (Though of course printing money is effectively a tax on savings, with the added effects of disruption to contracts.) And since the reparations were denominated in hard currency there were diminishing returns, as the government was printing ever-devaluing Papiermarks with which to buy Pounds Sterling and Francs.

[RobertoG]

>>"The drop in productive capacity is the motive, but not the means;"

Ok, I though we were talking about the final cause of inflation, not the mechanism, maybe you had something else in mind.

Now, if half of the productive economy disappear overnight, inflation is going to happen whatever the government do. You make it look like a government have an option in that situation.

If tomorrow morning half the fields and factories in the USA have magically disappear you will have inflation. In those circumstances, what sense would make to say that the "government is guilty because they printed too much money"?

Maybe you can tell me some example where something so catastrophic to the real productive economy happened like in Germany in the 20's or Zimbabwe and where inflation didn't happened.

[chr1]

The drop in productive capacity of the economy was much smaller than the drop in the value of their currency, so going crazy and destroying agriculture was responsible for the first part of inflation, but staying crazy and printing money was responsible for the most of it.

[RobertoG]

Can you support that with some data of citation?

I would recommend you to read the below link. It doesn't seem to me that the problem was "printing too much money".

From http://bilbo.economicoutlook.net/blog/?p=3773 :

-Unemployment rose to 80 per cent or more and many of those employed scratch around for a part-time living.

-45 per cent of the food output capacity was destroyed.

-In 2007, there was a 57 percent decline in export mineral shipments (see Financial Gazette for various reports etc).

-Manufacturing output fell by 29 per cent in 2005, 18 per cent in 2006 and 28 per cent in 2007. In 2007, only 18.9 per cent of Zimbabwe’s industrial capacity was being used. This reflected a range of things including raw material shortages. But overall, the manufacturers blamed the central bank for stalling their access to foreign exchange which is needed to buy imported raw materials etc. The Reserve Bank of Zimbabwe is using foreign reserves to import food. So you see the causality chain – trash your domestic food supply and then have to rely on imported food, which in turn, squeezes importers of raw materials who cannot get access to foreign exchange. So not only has the agricultural capacity been destroyed, what manufacturing capacity the economy had is being barely utilised.

[navigatesol]

>No one will give credit to those who pay with Monopoly money.

The creditors are also using Monopoly money.

[laser]

Taking debt to pay back debt does not automatically lead to hyperinflation. The US federal government currently takes debt every year to pay off debt. That's sustainable so long as these payments stay a relatively small percentage of the total revenue. Unfortunately, as debt to GDP ratio continues to rise, if inflation drives interest rates to rise, things can get messy pretty quickly.

[thoughtstheseus]

Yeah, that's why you don't want to do it(inflate debt away) but you can if you need to. It's never a bad thing to have a get out of jail free card on standby.

[doubleunplussed]

That's different. If the government prints money and spends it on goods and services in the economy to cause inflation, that would be 'inflating the debt away'. On the other hand if they print money solely to pay the debts, and they do not spend it on anything other than paying the debt, then that will not cause much inflation because the investors are most likely going to reinvest the money again, and it will not circulate in the economy. The result may not be much inflation at all.

[thoughtstheseus]

There is >10x as much fed debt as M0 cash... it’ll cause inflation.

[JumpCrisscross]

> The US could even pay back that debt with money they themselves issued if needed

Intergovernmental debt is a geopolitical concern. The U.S. could freeze interest payments and redemptions to China. It could place those holdings in receivership and pass a law granting those oppressed by Beijing damages from it.

With international debt, the debtor holds the cards.

[luckylion]

> With international debt, the debtor holds the cards.

I think this sentence needs "if the debtor has equal or superior military capabilities". Some small country owing to the US certainly isn't in the same position.

[zazagura]

Not true.

Please point to a case where US attacked a defaulting debtor.

You can't, because using the military against a defaulting debtor is against UN law.

[JumpCrisscross]

> Please point to a case where US attacked a defaulting debtor

Gunboat diplomacy [1] features vibrantly in history. "The Venezuelan crisis of 1902–03," for example, "was a naval blockade imposed against Venezuela by the United Kingdom, Germany and Italy from December 1902 to February 1903, after President Cipriano Castro refused to pay foreign debts and damages suffered by European citizens in recent Venezuelan civil wars" [2].

Broadly speaking, the UN provides guidelines--not actual limits--to the anarchy that is geopolitics.

[1] https://en.wikipedia.org/wiki/Gunboat_diplomacy

[2] https://en.wikipedia.org/wiki/Venezuelan_crisis_of_1902–1903

[luckylion]

You shouldn't put words into my mouth. A military intervention is always on the table - what pretense you use is a different question. That the US has been very liberal with the pretenses in the recent decades is well documented.

The fact of the matter is that military strength is what -internationally- decides who holds the cards.

[zazagura]

Not in matters of debt.

Just look at how EU was forced to erase more than 50% of Greece's debt.

Or look at how US hedge funds are still fighting Argentina (in court) to recoup some of the money. According to your logic US should have threatened Argentina by now.

[luckylion]

> Just look at how EU was forced to erase more than 50% of Greece's debt.

Greece is a member of the EU.

> Or look at how US hedge funds are still fighting Argentina (in court) to recoup some of the money.

Private interests aren't the nation's interests, until they are large enough or invest enough money into PR, see United Fruit Company.

It also doesn't mean that any and all questions of international diplomacy will be handled by the military. But if push comes to shove, and the country with the far superior military isn't happy with the conditions of the default (or nationalization, or annexation, or... anything, really), they tend to come down not to international contracts, the UN, or ethics, but to military strength. Consider the situation in Ukraine for a well-documented example that certainly would have played out very differently, were Ukraine and Russia similar in military strength (that is in this case: if Ukraine still was a nuclear power).

[bubble_talk]

That's an overly simplistic analysis.

>>If you owe them billions, it's their problem.

It is also entirely possible that if the US decides to actually make this (say) China's problem by overtly refusing to pay back the debt, everyone else who holds US Treasuries would start dumping them, driving demand lower and lower until both (US and China) the giant economies come crashing down.

That is, this may not a zero sum game. By which I mean, both countries could lose (and also end up taking the entire world economy down with them for at least a while).