Charles Davì

Your Guide to the National Debt

In Uncategorized on December 5, 2011 at 5:56 pm

All,

I’ve written my first piece in a very long time, this time on the National Debt. I’ve put quite a bit of work into it, and I’d appreciate your thoughts.

Best,

Charles

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  1. Good piece Charles, very useful for us non-Americans.

    An interesting follow up would be a comparison to a European country such as the UK, and/or one of the BRICs. Maybe it’s something we could work on.

    From an outsiders point of view, what happens now, given the ‘super’ committee failed? If there’s no solution to setting a budget, when does armageddon occur?

    Bill

    • Bill,

      Thanks! Unfortunately, I have only so much free time, so an EU Zone piece is probably not in the works anytime soon. But, if I come across an EU primer I’ll be sure to post it here.

      Hope all is well with you.

      Best,

      Charles

  2. Charles, I have been reading your articles probably few years now. You are a good micro financer and I love most of your explanations. However you are wrong about the US debt.

    US is technically borrowing when It deficit spends but in reality It is just issues financial assets and money is one of those financial assets. There is no risk interest rates going up (fed sets the interest rates) and there is no risk of default. Inflation is possibility but solvency is not. US government operationally doesn’t need to tax or borrow to spend. The funcion of taxes in a floating rate monetary system is to regulate aggragate demand, not to pay government expenses.

    ifIf you think about It like this: How is the Fed conducting monetary policy? It maintains Its target rate by draining and adding bank reserves.Right? When treasury spends, It adds those reserves or drains those reserves when it issues treasuries. Fed has to act exactly opposite to treasury to maintain the target rate. So US Government issuing treasuries is nothing but a glorified reserve drain like Warren Mosler says. The money ends up in the same place regardless of who does the reserve drain. It ends up at Fed. Treasury’s account is with the Fed.
    If I could not be very clear about this matter then I suggest reading a very simple and short book by Warren Mosler who has been an insider in monetary operations for 40 years.
    http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

    These are the crazy MMTers, but before you judge just read It, It is not very long.
    Thank You,
    Kristjan

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