John Krehbiel
Apparently my viewpoint isn’t so marginal after all.
by John Krehbiel on 31 January 2012
You can agree or disagree. I really don’t care. But it’s not just me.
2012-01-31 » John Krehbiel
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31 January 2012 @ 9:31 pm
I don’t think that post position confirms your position at all.
Lots of people say that we can print all the money we like as long as we are the default currency.
But that’s the trick. The difference in your position — at least as I understand it — is that you don’t think our ability to print all the money we like depends on the dollar remaining the reserve currency.
IOW, here’s the way I see it.
Other people say — we can print all the money we like, but if we print too much money, countries will lose faith in the dollar and quit using it as the reserve currency. At that point we’re in serious trouble.
You say — since we are a sovereign nation and make our own money, and since taxes have to be paid in dollars, we decide the value of money and can create as much money as we like.
1 February 2012 @ 7:17 pm
“The implications of this is that policies (funding the NEA for example) should be judged on their merits (and capacity to cause inflation or price distortions), not on concerns over budget deficits.”
If there are no concerns then by all means print enough money so that every man woman and child in the US doesn’t have any tax debt hanging over their heads. I mean it doesn’t matter…
And then of course suddenly it Does Matter again…
1 February 2012 @ 7:53 pm
Actually, nobody says we can “print all the money we like.” What they say is that our ability to create money is limited by the productive capacity of the economy, not by a limit on dollars per se.
You’re right that I think the default currency thing is a red herring.
And Deb, nothing that anybody has ever said in support of MMT in any way resembles what you are saying.
1 February 2012 @ 10:28 pm
I don’t think the default currency thing is a red herring. If some other currency becomes the default currency of trade on the world market, then the dollar has to compete on its actual value — not a fiat value.
2 February 2012 @ 11:15 am
The “fiat” part isn’t the value. The dollar is in fact traded on its value relative to other currencies, most of which are also fiat currency.
Anyone who wants to buy US products must pay for them in dollars. As long as the dollar is the medium of exchange within the US, anyone who wants to buy our stuff has to use dollars.
And the US still does manufacture a lot of goods for export, besides other kinds of products we export.
2 February 2012 @ 2:45 pm
>Anyone who wants to buy US products must pay for them in dollars
That’s the way it is now, but there’s no guarantee it will stay that way.
If the dollar ceases to be the world’s reserve currency, people may start buying U.S. goods in some other currency.
2 February 2012 @ 7:30 pm
Say what?
If I want to buy something from Europe, I need to use my dollars to buy Euros. If I want to buy something in Canada, I have to use my dollars to buy Canadian dollars.
Yes, some merchants will accept US dollars directly as a convenience, or maybe because they see them as more stable than other currencies, but that doesn’t affect the basic reality that all money is fiat.
Think about it, gold is only money to the extent that somebody recognizes it as such. If you go to the grocery store and the cashier rings up your order, you can’t pay in gold any more than you can pay with a Rolex watch.
2 February 2012 @ 8:47 pm
Right now the dollar is used for trade all over the world. It’s the default. Companies use dollars for trades that have nothing to do with American products.
If the euro or the Chinese yuan becomes more common for international transactions, that will stop, and the dollar will be more subject to currency fluctuations. Not by our choice. The government won’t be able to manipulate the value of the dollar so easily.
Then the dollar will trade on the open market like other currencies, and it will be an entirely different game for business.
The issue is not whether it’s “fiat money” or not. The issue is who gets to decide its value. Right now, we decide. That may change.
2 February 2012 @ 8:57 pm
Baloney.
In fact, it’s the Chinese who are criticized for artificially setting the value of their currency. And the Euro was doomed from the start. A central bank without a central fiscal policy is a joke.
The reason dollars are traded is that they are stable.
2 February 2012 @ 10:36 pm
There are a lot of people predicting that the dollar will lose reserve currency status. It may not happen, but it’s certainly a possibility.
Your entire economic argument sounds like special pleading from first to last. All the rules that have governed countries forever don’t apply. “It’s different this time.” We can make our own rules.
I don’t buy it, and I think it’s dangerous nonsense.
3 February 2012 @ 7:33 am
Although, to be fair, it’s not as if what we’re doing now isn’t dangerous nonsense too.
3 February 2012 @ 8:56 am
But something very important has changed, and current “thinking” in Congress hasn’t caught up; we are no longer on a gold standard. Money is not a physical resource, so limitations on money supply are not physical limits.
This is not to say that there are not limits.
And it’s not different this time. It’s almost exactly the same as in 1937, and we haven’t seen the worst of it.