[ahnick]

I am sincerely asking here... as long as the US dollar remains the majority reserve currency won't the US be able to successfully print its way out and basically ignore the balance sheet? If you think the US could experience repercussions while being the majority reserve currency what are the plausible scenario(s) that that would manifest itself?

[neilwilson]

It doesn’t matter whether it is reserve or not.

All floating currencies can do the same.

The issue is that the non government sector tends to hoard money rather than spending it.

The left want to confiscate those savings. The right try to mask them by pushing more and more people into debt.

The other option is that you realise net savings are largely inert in aggregate and essentially act like a tax.

Then you just accommodate them

[ahnick]

I agree with your statements about the non government sector and other items; however, I still don't follow your line of argumentation.

My understanding of why the US can print money without regard for consequences is because there are always "buyers" for US dollars, b/c countries need US Dollars to carry out business (e.g. China in order to maintain their export driven economy or the fact that the USD is used as the standard unit of currency in international markets for commodities such as gold and petroleum). Yes, there are technically other currencies that are part of the foreign exchange reserves, but none as prevalent as the USD.

As I understand it, this demand for US dollars is what allows USD to remain the dominant reserve currency and why when the US prints money it does not result in catastrophic inflation. If a country like Argentina tries to do what the US does it won't work out, because there is no demand for Argentinian dollars.

The conclusion I'm left with is that the balance sheet is largely irrelevant until the demand for US Dollar decreases. The real question in my mind is exactly what would cause that to occur? Most everything I read is that the network effect of the USD causes everyone to continue to use it, but perhaps something like a war between the US and China might be a precipitating event to decreased demand?

[cinquemb]

> The conclusion I'm left with is that the balance sheet is largely irrelevant until the demand for US Dollar decreases.

I agree if I change this to: the conclusion I'm left with is that the balance sheet is largely irrelevant (towards any inflationary terms) until the demand for US Dollar denominated debt decreases and is followed by increasing money supply without the increase in debt (government $ denom, corporate $ denom, and individual $ denom on net) and without increasing derivatives notional outstanding on that debt.

> The real question in my mind is exactly what would cause that to occur?

When intl banks get more comfortable with issuing debt (secured and unsecured) in non USD terms, I then would expect demand for USD fall as well so long the US maintains a trade deficit.

With the sunset of LIBOR in 2021, I expect things to pick up more on this front (Not everyone thinks SOFR is sufficient or lacks collateral to participate to the degree they currently need), though that's not stopping banks and OTC market making entities in various derivatives that extend credit in some form, including the use of cryptocurrencies.

A big problem with EM's is a lack of acceptable collateral backing the debt (arguably, this is the issue with the current global monetary system), investors wouldn't mind argentinian debt if they could have those debts backed by sufficient collateral in the event of default (sans the IMF bailout assumption of course, though some creditors continue to get hosed every time the default).

[neilwilson]

"My understanding of why the US can print money without regard for consequences is because there are always "buyers" for US dollars"

That's the usual view.

It isn't correct.

The US "prints" money because foreign US dollar earners don't spend all they earn. They "save". Which takes the dollars out of circulation.

And they do that largely because they end up on the asset side of some bank somewhere who then discounts them into the local currency.

That process locks the dollars (or dollar financial asset like a Treasury) in place. To get rid of the dollars they have to get rid of the local currency too.

All you can do is offset the net non-government savings (which includes foreigners. They are little different in the MMT view). Any more and you get inflation.

Argentina not only can do it, that is exactly what they do do as a necessary function of the way a banking system works. Balance sheets expand and contract through the day.

Again to the extent that there is excess saving in ARS, the government sector could offset that by simply hiring the resulting unemployed and paying them.

That there is unemployed tells you that there is excess saving. As Warren Mosler would say "if there are unemployed then we are overtaxed for the size of government we have".

[hundreddaysoff]

One thing that could cause this loss of faith to occur is if the Chinese are successful with making their new E-currency a medium of exchange for Americans.

My understanding is that the modern monetary theorists have an argument as to why this hyperinflation won't happen in a country with monetary sovereignty. (All the famous historical examples of hyperinflation involve countries that do not control their own currency.)

Damned if I can find a good basic text explaining the MMT argument. Naked Capitalism makes some great allusions but seems like you need to already be on their team to understand their arguments.

Seems pretty important to understand this stuff as we are all modern monetary theorists now whether we like it or not.

[neilwilson]

It's very simple.

Have you ever held a $100 note in your hand? If you have you have necessarily caused $100 of "debt" to the nation - because you haven't immediately spent it as soon as you received it.

If you'd spent it, it would be taxed as it moves and would rapidly become a $20, then a $10 and so on.

There are lots of reasons why you, and everybody else doing the same, hasn't spent that $100 yet.

What everybody gets excited about and calls "debt" is essentially the world's working capital.

The MMT view shift is straightforward. Stop calling it "debt", and call it what it is on the other side of the balance sheet "savings" or "assets". Then all becomes clear.