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But I think what you're saying is actually an illusion, even though widely believed. Maybe this can only work so long as the rest of the world plays along, and the USD is the leading reserve currency. If that ends -- and it certainly can end -- MMT stops working. That's what I have read anyway, but it does make sense. Perpetual motion machines can seem very convincing, but in the end they always stop.
Modern money is an illusion everywhere in the world. And the USD and its denominated debt paper are by far the most prominent, demanded, safe and secure of all. Banks, other financials, industries and businesses of many types, individuals, pols and crooks, cities and nations need and desire such secure money for their daily and longer term transactions, investment and savings.
IMO more than likely another currency will emerge over time, and in the distant future another reserve. But that does not mean the crash of the USD, as the future world will be a larger place economically. A generation ago I began saying that within a generation, the Yuan would so rise. But in that time it has barely budged.
And parts of that 'failure' can be explained due to its relative failing as modern money. Its safety, security and trust is very suspect with China's secretive money system. And there are cross border controls and even some pegging to the USD. So as a freely floating, exchangeable and convertible currency it is lacking. It could be that the 'failure' may simply be China's lack of desire to take on that worldly responsibility.
When the US government needs to borrow money, it issues bonds. These bonds can be bought by US citizens, foreign citizens, foreign governments, bond funds, etc. -- anyone who has faith in the US government's ability to pay them back, with interest.
Ever since the last financial crisis, around 2008, the Federal Reserve has had a policy of buying US bonds. They call this "quantitative easing," because I guess it's supposed to make things easier or somehow help the economy. When the Fed buys US bonds, it actually creates the money it uses to buy them, literally out of thin air.
This continued until the pandemic, but then was greatly increased.
So this means, the Federal Reserve is probably one of the biggest, or the biggest, investors in US government debt. Although the Fed is not technically part of the US gov, we could actually say that it is part of the US gov. And that means, when the US gov wants to borrow money, it borrows it from itself. The US gov lends itself money that it created out of nothing. And it can do this as much as it wants, whenever it wants.
Is this sort of like the serpent eating its tail? Or the sound of one hand clapping? Tell me if I'm wrong, but to me it sounds like the mythical perpetual motion machine. Does it seem to you like fancy financial trickery? Can it possibly have a good ending?
Holding more of the supply of US Treasuries is a way of insuring that the market can't be completely flooded with them.
Modern money is an illusion everywhere in the world. And the USD and its denominated debt paper are by far the most prominent, demanded, safe and secure of all. Banks, other financials, industries and businesses of many types, individuals, pols and crooks, cities and nations need and desire such secure money for their daily and longer term transactions, investment and savings.
IMO more than likely another currency will emerge over time, and in the distant future another reserve. But that does not mean the crash of the USD, as the future world will be a larger place economically. A generation ago I began saying that within a generation, the Yuan would so rise. But in that time it has barely budged.
And parts of that 'failure' can be explained due to its relative failing as modern money. Its safety, security and trust is very suspect with China's secretive money system. And there are cross border controls and even some pegging to the USD. So as a freely floating, exchangeable and convertible currency it is lacking. It could be that the 'failure' may simply be China's lack of desire to take on that worldly responsibility.
China wants the Yuan devalued relative to the dollar, it makes for a better export market for them. A strong Yuan hurts their bottom line.
Holding more of the supply of US Treasuries is a way of insuring that the market can't be completely flooded with them.
When the Fed owns our debt, the interest it receives from the Treasury is swept back. So as long as the Fed holds or rolls over the debt, conceivably into perpetuity, there is no repayment obligation by the Treasury or taxpayer.
And yes there can be inflation.
The problem with the US public debt process is there is a few assumptions:
-It represents the risk free rate
-There is 0 risk of default or late payment
-The demand buying US debt is infinite
The entire economy and US credit/debt system is a function of a Treasuries process if this stumbles the entire house of cards collapses. It's akin to the prior assumption that housing prices always go up sans Florida/Nevada pre 2008.
The problem with the US public debt process is there is a few assumptions:
-It represents the risk free rate
-There is 0 risk of default or late payment
-The demand buying US debt is infinite
The entire economy and US credit/debt system is a function of a Treasuries process if this stumbles the entire house of cards collapses. It's akin to the prior assumption that housing prices always go up sans Florida/Nevada pre 2008.
Never say never or infinite! But the 3 are true in essence. Always remembering that Inflation is a real possibility and could be the end limit.
There is no inherent reason for default on any debt based in our sovereign currency. To default or make a late payment would take a specific action by our elected officials.
And the Fed can create any money to buy the debt, whether the rest of the world participates or not. How much and for how long of course no one can know. Japan of course does more.
In 100 years could our national debt number be 100T? In a thousand years 1Q? I don't know why not. Excepting an asteroid or inflation.
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