[lifty]

Hilariously weak? I think they lay out a reasonable argument considering the amount of debt around the world and the fragility of the economy. The big question is: will we have deflation or inflation? I am not sure, but I doubt the USG will let itself go bankrupt.

[betterunix2]

"I doubt the USG will let itself go bankrupt."

The federal government cannot go bankrupt. In theory the government can default on debts, but in reality there is never a situation where the government would be forced to do so (it is always due to political dysfunction) -- as others have stated the US government is able to issue more money whenever it needs to do so, and thus can always satisfy any monetary obligations (though there may be negative consequences to doing so). Even if the government does default on its debts, it would not truly be bankrupt, because bankruptcy means that some higher authority has stepped in to decide what will be repaid and how, but the federal government is the highest authority. Likewise for the states, which cannot issue money but which cannot actually go bankrupt (as they have the authority to decide what obligations to meet or to fail to meet), something which has become relevant due to the enormous cost of dealing with COVID.

[nostrademons]

I think that was the grandparent's point. The USG can always issue more currency and inflate away the value of its debt. Doing so is preferable to default (and the fiscal & political crisis that would bring), and so they will. Thus, we're going to get more inflation.

[betterunix2]

There was nearly a technical default just last year, and the US has actually defaulted on its debt in the past. Politicians do not always behave rationally.

[parasubvert]

We watched one of the US political parties threaten default at least three times in the past 12 years.

I think creating political/fiscal crises is part of the point.

[frank2]

I had no idea. Where can I learn more about this?

Are you sure they threatened to default of _Treasury_ instruments?

[parasubvert]

Yes.

And while the mainstream view is that Ryan/Boehner never really intended to go through with it because they knew the consequences, a sizable contingent of congresspeople & conservative pundits wanted to go through with it just to show that "they meant business".

https://en.wikipedia.org/wiki/United_States_debt-ceiling_cri...

My perspective, when people tell you what they'll do, believe them. It would be economic equivalent to setting off a nuclear bomb in the middle of the country, but :shrug:, it would own the libs.

[betterunix2]

Basically it came down to a refusal to raise the debt ceiling, which forces the Treasury to take "extraordinary" measures to meet debt obligations. In several cases the Treasury was warning that they were running out of such measures and that if the debt ceiling was not raised there would be a default.

[lifty]

Defaulting is a much better word, I shouldn't have used 'bankrupt'. And I agree with you, I think it's a nearly impossible for the USG to default on its debt, even temporarily. The only situation in which that can happen is through insane administrative fuckup, but that's not likely.

[DSingularity]

Correction: the world won’t let the USG go bankrupt. American generals won’t just stand down, disband their forces, and turn in their boots. If the USG goes bankrupt a massive war will breakout. In the business world things have been going pretty well so if more taxes become necessary to prop up the USG they will happily oblige.

[lifty]

I agree with what you are saying, but even before that point, the USG which is sovereign over its money supply, will be able cover any liabilities it has by creating the necessary money. This is what I was alluding to when I mentioned that the USG won’t let itself go bankrupt. They will destroy the USD before going bankrupt, because the repercussions of going bankrupt are much worse than a lower valued USD. Also, the whole debt ceiling is a charade; the FED can and has monetized treasury debt without any fuss.

[martinko]

Inflating the debt away would actually be the opposite of bankruptcy.