[Scandiravian]

National debt and private debt are two very different creatures. National debt is for the most part a good thing, since it's a measure of the amount of a national currency is in circulation

Modern economic theory proposes that nations, with full control over their currency, have infinite spending power (aka can go into infinite debt) without any issues, as long as full-employment hasn't been reached

This is of course not entirely possible for many EU countries, since being a member of the eurozone means the country does not have full control over its currency - which was a large contributor to, for instance, the Greek financial crisis

[oblio]

I don't know what kind of economic books you've read, but mine had terms such as "hyperinflation" in them :-)

If anything, stuff like global currencies ($, €) bail out their respective owners because they're world reserve currencies. Some of the smaller Eurozone countries would have definitely defaulted, had hyperinflation, etc, without the Euro. Now they're in recession instead, which sucks a lot but still less than the alternative.

[imtringued]

>I don't know what kind of economic books you've read, but mine had terms such as "hyperinflation" in them :-)

You don't have to issue more currency/debt once you have reached the target inflation rate because if you manage to hit the right inflation rate every year you have already executed your stimulus properly and are reducing unemployment. Consumer inflation is a proxy for worker income because most of the goods or services that are indexed are the product of labor. If the stimulus arrives in the hands of workers first it will mean that worker salaries will grow ahead of inflation.

>If anything, stuff like global currencies ($, €) bail out their respective owners because they're world reserve currencies. Some of the smaller Eurozone countries would have definitely defaulted, had hyperinflation, etc, without the Euro. Now they're in recession instead, which sucks a lot but still less than the alternative.

They are in recession because of a lack of demand for domestic workers which is basically the problem that moderate inflation would solve.

Just look at these charts:

https://www.statista.com/statistics/225698/monthly-inflation...

Inflation is high in Poland and Hungary. Does this mean they suffer from problems? Actually no it's the opposite.

https://www.statista.com/statistics/268830/unemployment-rate...

Poland has the second lowest unemployment rate and Hungary is still well below the EU average. Please bear in mind that this chart only shows the inflation rate in August. I chose this chart because it is a easy to read bar chart. Some numbers may be outliers but the general trend will be the same no matter what chart you look at.

[js8]

MMT doesn't say you can't have hyperinflation due to economic mismanagement, it just says you can bootstrap yourself out of unemployment (a crisis) by printing money.

Just because a government is printing money it doesn't yet mean they practice a sane economic policy, which would be to increase the demand to meet the supply of labor.

[Scandiravian]

I have never understood, why everyone brings up inflation as an argument against this, as if that isn't something that already exists

Inflation is only an issue if you spend money beyond what is required to achieve full employment in the workforce, since new money in the system is balanced with new wealth being generated through work

Inflation can then be controlled through taxation. Raising taxes pulls money out of circulation, thereby reducing inflation

Private banks already have the ability to create money out of thin air, but for some weird reason, that's apparently not really an issue for most people

I can't think of any small European countries that I can imagine defaulting without the euro. Could you specify which ones you think would have defaulted?

[oblio]

Greece, for sure.

They would have defaulted and the drachma would have probably been at a point where a loaf of bread would cost millions of drachmas.

[Scandiravian]

On the contrary, the eurozone is a massive reason for the Greek economy collapsing as catastrophically as it did in the wake of the 2008 financial crisis

It also doesn't matter how "many" of a currency is needed for a loaf of bread, as long as the supply is available. The Italian lira was extremely inexpensive, but as long as the government made sure the supply matched the demand there was no issue

Edit: I'd also say that Greece is not really a "smaller European country", being the 14th most populous European country

[oblio]

What about savings? What about salaries? Hyperinflation absolutely wrecks the lives of regular people.

[Scandiravian]

What about them?

You're just listing questions without contributing with any alternatives or reflection on what has been said by others

Hyperinflation is an extreme case and others have already posted several answers to this, which you have chosen to ignore

[mytailorisrich]

I wonder which "modern" theory this comes from...

Some debt is a good thing because, like for a business or individual, it is generally a good thing to borrow in order to invest for the future (leveraging effect).

But too much debt is not a good thing. Debt must be serviced and one need to find creditors willing to lend.

Infinite borrowing based on "full control of currency" only means that the value of the currency decreases towards zero and creates hyperinflation: can Zimbabwe support a debt of trillions of Zimbabwean dollars? Sure... But how much is a Zimbabwean dollar worth? Close to nothing and people need a wheelbarrow full of cash to buy a loaf of bread.

[imtringued]

Hyper inflation is the result of exhausting your countries' production capacity. This is generally a temporary phenomenon because the supply side can always eventually catch up because the demand side is funding it. In economies where it is a permanent problem it is because either the economy is prevented from expanding production (think of preventing new housing in San Francisco or excessively low unemployment) or because there is too much demand for products (generally through printing more money despite the low unemployment or debt).

Well, if we assume that your country is unable to introduce more money into the economy through no fault of its own (well that's never true) you can still fix the problem by investing into more production capacity and education. The unemployment in Zimbabwe is relatively low at around 5% so any additional money it prints will turn into inflation. If you were to follow MMT you would stop introducing more money because that is the core argument in MMT: print until inflation is back on track. Inflation is already on track in Zimbabwe.

The thing is, once you are in this situation you are almost set up to fall into the pit of success. All you need to do is invest into businesses, expand production capacity through automation and also invest into education. Follow the Chinese model by creating special economic zones where foreign investors can easily do business. Follow the German model of vocational training to solve the education problem. These problems are far less intractable than what first world countries are suffering through.

[Scandiravian]

Sovereign nations don't indebt themselves through banks. They're not taking out loans to fund their spending, so they don't need a creditor

Avoiding hyperinflation is about "how" you spend the money, not where they come from. In the case of Zimbabwe, the events leading up to their crash was massive destruction of productivity, which meant their wealth generation no longer matched the amount of money in circulation

The trust in their currency took a nosedive, because of the confiscation of assets from wealthy farmers - basically a clear message saying, that the government will not protect assets purchased with their currency, making it risky to own and use

Most western economies are much more stable and have high levels of demand for their currencies, which acts as a counterweight to inflation as well

[mytailorisrich]

This is patently false and a rather strange claim.

Sovereign nations do indebt themselves through banks and financial markets in general, most often through the issuance of bonds, which can be defined as highly tradeable loans.

This is why sovereign debt is given a rating by credit agencies and why interest rates on debt freely vary based on the perceived risk by creditors. This also means that it can become difficult for a country to borrow at all (hence organizations like the IMF sometimes stepping in)

There is no magic.

However you spend money, inflation is created by an excess supply, not least when money is printed to cover debts (an effective devaluation). This is actually what happened in Zimbabwe.

[Scandiravian]

I think you're missing the point

A nation doesn't issue bonds to cover the cost of its spending, but to remove money from circulation. It's simply a way of saying "hey, there's too much money around. If you let us remove some of it now, we'll give you back more in the future"

There's literally no situation where a sovereign nation would not be able to pay out the bonds it has issued. It's simply a matter of making the money printer go "brrrrr" and presto - the debt has been resolved

In the most broad terms, the only difference between realising bonds and simply printing the money is the lag time

As you say yourself - there is no magic

In the case of Zimbabwe, and as stated very well by imtringued in the other post to this thread, Zimbabwe could have invested in production, education, and infrastructure to grow the economy, instead of trying to sell bonds, which is essentially saying

"Hey, you know this currency that is rapidly loosing value - we're going to print so much more of it in the future! Doesn't this seem like a great investment?"

[username90]

> In the most broad terms, the only difference between realising bonds and simply printing the money is the lag time.

Another significant difference: Printing money transfers wealth from the rich to the poor, borrowing transfers wealth from the poor to the rich. So countries which cares for their poor and low corruption among politicians see low government debt rates, while countries like USA where politicians are very close to rich people just continues borrowing forever.

[emteycz]

99% rich people store their wealth in assets - which are not affected by inflation at all (in fact, the value appreciation often beats it - even during a pandemic). Only the poor people have to store their wealth in cash because they don't have enough of it to buy a diversified range of assets, and the short term risk is unbearable to them (while rich people will simply hodl a little longer). Additionally, poor people usually don't have the means to renegotiate their salaries often enough to keep up with inflation, much less to beat it.

[mytailorisrich]

> "A nation doesn't issue bonds to cover the cost of its spending, but to remove money from circulation"

Another patently false and strange claim...

I am puzzled by where you might have got all of these "theories" from.

[Scandiravian]

Here's a working paper from the levy institute, which covers the issue http://www.levyinstitute.org/publications/can-taxes-and-bond...

Or you could simply spend some time reading the Wikipedia entry https://en.wikipedia.org/wiki/Modern_Monetary_Theory?wprov=s...

Since you now twice called my statements "patently false", without offering any evidence to your argument or even explaining them, I'd like you to provide some sources to support your claims

H

[emteycz]

That's interesting - if what you're saying is true then why is the government's next year policy significantly increasing taxes, essentially stopping all investment and reducing social safety payouts to nearly zero - all of that in order to pay debt? We're not in the Eurozone, were THE ONE country with nearly total employment, and were the fastest growing European economy before the pandemic.

[Scandiravian]

I'm not sure what country you're referring to - could you specify that?

[js8]

In addition to the above, which I agree with, you might also view money not as a resource, but a vote in economy. If we assume that people are motivated by money, they will still work even on UBI, because what UBI shifts is just who is voting (who is making the decisions to produce stuff).

So having an UBI is not really that different than change in demand from one set of products to another, which the economy should be able to handle even according to classical theories. But people are still rewarded for useful work even in the system with UBI, as usual. In fact, if many people decide not to work with UBI, and you do a useful job, your salary might go up, since demand from all these people for your work has gone up.

[Scandiravian]

I've never thought of it that way. It's an interesting idea, that I want to understand better, so I'll spend a few hours reading up on this today.

Your post taught me something new, which I probably wouldn't have found out on my own. Thank you :)

[username90]

> National debt is for the most part a good thing, since it's a measure of the amount of a national currency is in circulation

Why do you say this as a Scandinavian when all Scandinavian are fiscally responsible and don't take on more debt every year? Taking on debt isn't a good thing, you can have currency without having any debt as a nation, they aren't related at all. People arguing for that are just trying to manipulate you into believing they are on your side.

[Scandiravian]

I think you're skipping over "for the most part" in my post

Are you talking about private debt or governmental debt? They are, as stated in my first post, two entirely different things

[username90]

Government debt.

https://tradingeconomics.com/sweden/government-debt-to-gdp

For example Sweden where I live has reduced their government debt to GDP ratio pretty consistently the past 25 years, and I haven't noticed any problems with it. People saying that we would have problems if governments balanced their budgets are just big fat liars.

[Scandiravian]

I think calling other "big fat liars" is a sad approach to a discourse. I don't know who the "people" you refer to are, so unless you specify that, I can't comment on it. I can't remember making a claim like that

In fact reducing national debt through taxation is an effective way of reducing inflation. Reducing national debt does not mean the economy will fail.

The economy is not a binary system ("success", "fail"), so the more interesting question to me, is whether Sweden's economy would have done better if they had chosen a different economic policy

[username90]

If a politician funds all their initiatives via debt instead of taxation in order to get popular support and thus push the problems down to the line that is a pretty shitty thing to do, but it is fine sometimes you have to do it and there is a tradeoff. But when they then argue "Taking on debt is actually a good thing, don't blame me for doing it I had to do it! Everyone does it! Paying off debt is actually a bad thing to do for governments!" they crossed the line and I can no longer consider them as good people. So I used those words since that is what they are, shitty people deserve shitty treatment.

[Scandiravian]

I'm sad to hear that you automatically label people you disagree with as "shitty people" and they "deserve shitty treatment". It eliminates the possibility for dialogue, empathy and learning

You essentially block yourself of improving yourself by realising you might be wrong about something

It sounds to me like you think of a national economy as a household budget. Taxes are income and welfare is expenses, you take loans from banks, which have interest and needs to be paid back or you get punished

It's a nice and simple explanation, which also happens to be 100% wrong

Government debt have no interest and there's no creditor who needs to be paid back. Whenever the Swedish government prints 100 crowns, it goes 100 crowns more into debt

Whenever it gets 100 crowns in through taxes it resolves 100 crowns of debt

National debt is not the same as private debt. They're two completely different things, that unfortunately have kind of similar names

National debt is simply the amount of the national currency in circulation. To be "debt free", Sweden would have to remove every single crown from circulation, which obviously is not a good idea for the economy

Additionally - the government does not use taxes to fund spending. Swedish crowns are essentially worthless to the Swedish government, because they own the money printing press and could make infinite money if they wanted to

If parents setup a system for their kids, where they get small paper notes for doing chores, which can be traded in for the daily WiFi password, the notes have no value for the parents and the WiFi would work without the kids paying chore notes, but they're still useful because they facilitate the "doing of chores" and have value to the kids because of the "WiFi tax"

In other words the purpose of taxes is to create demand for the currency to match the supply the government is creating by printing more money. By having a demand for the currency, the government can use it to pay people to do "chores" it wants done by simply turning on the money printer, then collecting taxes at a later date