I remember the early days of debt clocks, the huge tallying numbers in Union Square in NYC, and rhetoric, always from Republicans, claiming debt doom when Democrats proposed spending and ignoring much larger deficits initiated by their own party.
Now we know what utter bullshit that was, not only fallacious on the merits- because governments, especially the US, are not households or businesses- but also that those false narratives and warnings were produced with wholly mendacious intent.
We also know about proper data visualization and numeric communication, about picking useful numbers, and presenting them in context; and we know about dark patterns, and lying with statistics, and data malpractice.
This page is at best a deceptive curiosity. A more fair assessment is that it attempts to induce anxiety while failing to communicate anything of actual utility or insight. Best to just turn it off, come back with something useful.
Free speech, and all, sure. But some speech is garbage. Cheers.
> I remember the early days of debt clocks, the huge tallying numbers in Union Square in NYC, and rhetoric, always from Republicans, claiming debt doom when Democrats proposed spending and ignoring much larger deficits initiated by their own party.
The clock in Union Square wasn't a debt clock. You're thinking of the much smaller display on 44th and 6th. [0]
That Union Square clock originally told the time just styled as a single number. Ironically it has recently been reprogrammed to illustrate a critic window for action to prevent the effects of global warming from becoming irreversible [1]. About 7.5 years left. Do with that what you will
>claiming debt doom when Democrats proposed spending and ignoring much larger deficits initiated by their own party
"Leader Schumer and Speaker Pelosi issued this statement in advance of Wednesday’s meeting with the White House on a $2 trillion infrastructure plan [...] we look forward to hearing the President’s plan for how to pay for this package" [1]
You're ignoring the partisan rhetoric from the other side, no?
> In other words, those dire warnings we used to hear (and will soon be hearing again) that America faces imminent disaster once government debt crosses some red line were always misguided. We weren’t and aren’t anywhere close to that kind of crisis, and probably never will be.
Paul Krugman is an idealogue and has a history of making wildly innacurate statements, poor predictions, and failing to understand Econ 101 level concepts.
From the same Nobel Prize Winner
>“By 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s.”
He also said
> [America] needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”
So I guess having a nobel prize isn't an argument in itself.
Of course in both cases he "wasn't being serious" as clearly noted years after it was very obvious that these things were ridiculous things to say and people were constantly calling him out on them, yet he said them.
1 -> He has already accepted he was mistaken. Yet, it’s not so obvious he was wrong, because his argument wasn’t that the internet wasn’t gonna have a huge impact as much as the fact that the fax machine had a huge impact as a communication device and the internet would have a similar impact as a communication technology. He clearly didn’t understand how the internet could go beyond the communication aspect but that has nothing to do with being wrong about the logic but more so not understanding the internet. Something most people didn’t, including people like Bill Gates.
2 -> I’m not sure what was wrong here because this is exactly what happened. Greenspan created a housing bubble to offset the fact that a dot com bubble had just popped. His “needs to create” wasn’t an endorsement of this strategy. It was a prediction of what a conservative governement would need to do, which is exactly what they did.
But even setting aside these nuances, even if you think he was wildly wrong(I’m still not sure what he was wrong about #2), it’s not a misunderstanding of Econ 101 or Econ of any level by any measure. At worst it’s a bad prediction of stuff that was basically unpredictable.
Paul Krugman is a partisan writer for the New York Times, so take his words with a grain of salt. There are plenty of other economists who are worried about the national debt. Only time will tell who was right.
I am not American but I am interested in American politics for a very long time. I am not very pro-republican or pro-democrat either but what I have noticed that debt clock becomes much more posted when democrat is in the office. When republicans are in power debt clock magically disapears :)
Let’s say the worst case scenario happens. All of America’s creditors demand their money back. And let’s assume none of them are Americans who the US government can tax.
What actually happens? All the debt is denominated in dollars. The US will simply print dollar bills that match exactly what it owes each creditor and give it to them. And they’re done. But before they do that, they will create a new currency, the USDNew, replace every existing $ with USDNew on a one to one basis, and then pay back their debt in old dollars.
And the US will change its constitution to say it doesn’t need to always honor its debt.
And the US will say that old$ don’t matter anymore.
What will be the impact? New$ will basically become $. The old debt will be completely wiped out for free. All the creditors who decided to fuck with the US will be growth worthless pieces of paper or bits.
The US’s reputation will be damaged and the dollar hegemony will be severely weakened, but a lot of people who keep pushing the “debt crisis” narratives aren’t fans of the dollar hegemony to begin with and believe it hurts US exports and competitiveness.
So basically in the worst case situation the US would have enjoyed decades of benefits for the dollar hegemony, and will now take the advantages of those benefits to compete inehat will be a slightly more even global economic market.
All the US creditors demand their money back. The US prints new $ to pay them.
What is the impact? People now have a bunch of $ sitting under their mattress instead of treasuries. However, those treasuries were already effectively as good as $, since the market for them is highly liquid. If someone wasn't going to spend their wealth when it was in the form of treasuries, their not going to suddenly decide to spend it just because it is in the form of $.
The real risk in this scenario is not that people are cashing in their debt; but rather the reason they are doing so.
If they are cashing in on their debt because they want to get out of USD all together, the US will have a major problem. But that problem is people moving out of USD; the cashing in of the debt is just a symptom.
They could also be doing it because they have stuff they want to spend USD on. Generally speaking, we like it when people spend USD, as that is a sign of a healthy economy. But if people suddenly decided to spend all of the wealth they had been saving in US debt, we would be in a very market. But, again, the problem hear is the overheated market; it doesn't matter that the mechanism is people cashing in on their US debt instead of other savings vehicles.
For all practical purposes, the effect of the debt occurs when the government re-spends the money they got as a result of issueing the debt. In exactly the same way fractional reserve banking increases the money supply by issuing debt and having the debtors spend it; treasuries increase the money supply by issuing debt and having the debtor (US government) spend it. The only difference is the debtor has the option just increasing the money supply any way.
As a practical matter, US bonds play an important role in the financial system, and it is not clear what would replace them if people suddenly stopped using them.
Good point, your last sentence is what I've been wondering about for some time. From the past decades we have learned that there are clear economical and political disadvantages of having your currency as the world reserve currency - namely the Triffin Dilemma (https://en.wikipedia.org/wiki/Triffin_dilemma). I think China already knows this from observing the US and might actually be hesitant on making their Yuan as the world reserve currency. Alternatives like Bitcoin might sound cool at first but isn't really a good solution because of its mathematical destiny as a deflationary asset, and that it can't be modulated effectively throughout monetary policy - only math and speculationary greed governs it! In an ideal world a system like the Bancor (that Keynes originally proposed) would be established if all countries have understood this dilemma and tried to come up with a peaceful solution for world trade. But China seems more and more unlikely to abandon their imperialist ambitions especially after Xi Jinping's inauguration (which to be fair, they've learned from previous empires like the Europe and the US).
There is quite some possibility that the reserve status of the US dollar will continue to slowly deteriorate, but there wouldn't be an alternative - we would be trading with a mixture of yuans, euros, dollars without any global consensus, and things would surprisingly run as nothing has happened. But then there is also some possibility that there will be a full-out global war between the old and new empires, and at that point the question of world currency and world trade becomes politically redundant.
The real risk here is if inflation makes a reappearance, say as a result of people starting to spend all that money floating around. As I understand it the way to deal with that is to raise interest rates, which means that the cost of servicing all that debt suddenly increases for everyone that holds it (both the US government and private individuals). This could be really painful. In this scenario, the problem is the combination of both the large amounts of debt and inflation rearing its head; either one alone would be manageable.
With such outright shenanigans everyone would lose faith in any US-minted currency and it would become next to worthless. America would be unable to finance any new debt and the government's ability to spend (beyond what it raises in taxes) would collapse.
Wouldn’t even need to do that. The entire treasury debt system is voluntary. Nothing keeps congress from winding it down altogether. Or a compromise like ordering the Fed to set interest rates to 0 and “borrowing” forever at that rate. And then there’s platinum coin shenanigans. Point being this system is a creature of the US Government and given the political will it can set the rules however it likes, even while nominally honoring all present obligations.
> The US will simply print dollar bills that match exactly what it owes each creditor and give it to them.
And in doing so the US will "simply" vaporize its entire economy.
> IOW, the US doesn’t get hurt at all.
Those of us Americans who are reliant on the dollar holding at least some modicum of value - you know, because that's the currency which we have to use day-to-day - would be hurt pretty substantially. Not all of us have a nice cushion of gold and Bitcoin and real estate to ride out what you're calling a "simple" solution.
You're describing this process is going to be incredibly smooth, but you need to consider that what you have written actually has massive political and economical implications...
> But before they do that, they will create a new currency, the USDNew, replace every existing $ with USDNew on a one to one basis, and then pay back their debt in old dollars.
Wait a minute, are you saying that the US is going to default on their own currency? OK, then be ready for every country to instantly not trust the US dollar anymore, leading to a devastating devaluation of the dollar and import prices skyrocketing off the charts. And guess what: the US, having gone through serious amounts of deindustrialization and being used to rely on foreign imports, now doesn't know how to make things anymore, so expect hyperinflation across all sorts of manufactured goods, many of which are needed in people's daily lives and jobs! You can't just expect national production capacity to quickly catch up to demand; industry takes actual time to rebuild itself.
Also, I think people underestimate the fact that the current strength of the US dollar isn't really backed by exports - it's because of the US's massive military / political strength that can crush any small country if they do not obey the ideology of 'their' free market. For example, through the petrodollar system they have been able to force oil (the most important commodity) in the Middle East countries to be only be bought in US dollars, in return for military protection. And any country that tries to deviate from this system will be fucked (for example, Iraq, Iran, and now probably Venezuela, who all got fucked after trying to sell their oil in something other than US dollars). This new petrodollar system has forced US dollar demand to skyrocket throughout the entire world, to replace the previous Bretton Woods system that ran on gold. The verdict is: the US dollar will only devalue if the current neoliberal ruling class of the US decides to forfeit any military intervention and policing throughout the world to establish markets beneficial for them (especially the Middle East). But I think the current ruling class is never going to give up on this, so a political change of hands (through either democratic or non-democratic means) would be necessary. And that's where all the political implications are.
> So basically in the worst case situation the US would have enjoyed decades of benefits for the dollar hegemony, and will now take the advantages of those benefits to compete inehat will be a slightly more even global economic market.
The problem is the 'take the advantages of' part - if your US dollars become toilet paper, and you do not have the infrastructure to build things, then you really don't have anything to take advantage of (after losing your World Police (TM) status). At least the US still has a shit-ton of natural resources to begin with though. But really, what you should immediately focus after the total devaluation of the US dollar would not be about rebuilding but dealing with widespread unrest and an actual imminent civil war.
The US has an enormous privilege by having the global reserve currency. Through our military and political influence we have also forced several commodities, specifically oil, to only be priced in USD. This has driven global demand for USD in order to pay for goods not exported by the US - everyone needs oil, and oil can only be purchased with USD, so everyone needs USD. This causes countries to export to the US at cheaper exchange rates, basically guaranteeing that US manufacturing is at a permanent disadvantage for low-complexity goods that don’t play into our research strengths.
This also allows us to run insanely high deficits, as we can print dollars more easily than other countries without reducing demand for further dollars.
However I think the reserve status of USD is under serious threat. I don’t think US citizens care for war and are much more isolationist than politicians want. I don’t think using our military to enforce reserve status will be palatable anymore, and threats from China and experimental currencies like bitcoin will undermine the reserve currency status.
Now we know what utter bullshit that was, not only fallacious on the merits- because governments, especially the US, are not households or businesses- but also that those false narratives and warnings were produced with wholly mendacious intent.
We also know about proper data visualization and numeric communication, about picking useful numbers, and presenting them in context; and we know about dark patterns, and lying with statistics, and data malpractice.
This page is at best a deceptive curiosity. A more fair assessment is that it attempts to induce anxiety while failing to communicate anything of actual utility or insight. Best to just turn it off, come back with something useful.
Free speech, and all, sure. But some speech is garbage. Cheers.