Debt
David Graeber, Warren Buffett and Paul Krugman discuss debt- is og good, bad, sustainable. It’s particularly interesting to see what Gaeber says about the Japanese and Chinese views of American debt.
Some excerpts below from Graeber:
from https://davidgraeber.org/articles/david-graeber-studied-5000-years-of-debt/
“Since 1971, when Nixon went off the gold standard, the dollar has essentially played the role gold used to play as the bedrock of the world banking system.
…the structure of the current world economy, where the US military basically plays the role of police, and is effectively rewarded by being allowed to maintain a global monetary system which gives us huge economic advantages (notably, the ability to import much more than we export), will be seriously jeopardized.
The US owes most of that money to itself. Four dollars in five are owed internally, and about half of that is actually owed by the government to other branches of the government—especially, to the Federal reserve.
…finally there’s the overseas debt. Even that isn’t much different. If you look at what actually happens with all those Treasury bonds floating around in foreign banks – well, the vast majority never get called in. The banks holding them just roll them over every five or ten years, as soon as they mature.
Why? Because, as I say, T-bonds have come to replace gold as the world’s reserve currency.
If the study of history shows us anything, it’s that it all comes down to power. The people on the top know that everything is negotiable. If there’s a real problem, you can always work something out – which is what we saw in 2008, when the financial establishment effectively convinced the both political parties to step in and take care of several trillion dollars of their gambling debts.
If Mozambique owes the US 10 billion dollars, Mozambique has a big problem. If the US owes Japan10 billion dollars, then Japan has a problem, because there’s no way it can force the US to do anything it doesn’t want to.
Or even France: in 1971 when Charles de Gaulle tried to call in his US debt in gold, which he was legally entitled to do, Nixon just shrugged his shoulders said “fine, then I’ll go off the gold standard.” What was France going to do? Nuke us?
Actually, most of those countries that own all those T-bonds know they are losing money by sitting on them (the yields are less than inflation), and they’ll never get all their money back. But most of them – Japan, South Korea, the Gulf States – are regimes under US military protection, in fact, with huge US military bases sitting right on top of them, so really we’re talking about protection money—in whatever sense of the term.
Obviously, China is a different story. Their behavior is a little harder to explain, since they are effectively shipping enormous amounts of consumer goods to us on credit and must know they’re never going to get paid back. But here I think you have to remember two things. First, China has two thousand years of experience flooding potential rival powers with riches, so as to make them spoiled and dependent. If it worked on the steppe nomads, why not the US- which they probably see as just as scary, violent barbarians?
Second, the Chinese leadership might be running a quasi-capitalist state but these guys were all trained as Marxists. They probably still see all this high finance as so much mumbo jumbo – “ideological superstructure” as the Marxists like to put it – it isn’t really real.
What’s real is highways, factories, and technology. And they are getting more and more of that, and we’re getting less. So they’re perfectly happy with arrangements as they stand.
I suspect there’s a kind of tacit deal, here, whether explicitly stated or not: the Chinese gov- ernment periodically pretends to get all worked up over the US debt, even though they don’t care, and in exchange, the US only pretends to get worked up over their constant pirating of intellectual property rights and technology transfers, but in fact, lets them get away with it. The result: we get Walmart, and they get nanotechnology, superfast trains, and a space program. So what do they care if we never “pay the debt?”
Of course this time around, the first thing we did was create the IMF, a vast overarching insti- tution designed basically to protect creditors. But (most people don’t know this) that didn’t work out too well. The IMF has been effectively kicked out of Asia and Latin America for some time now, and now, most recently, from Egypt. So that model has definitely failed.
“In 2008, the financial elites let the cat out of the bag when they refused to let their banks fail like the textbooks say they were supposed to. As a result, we learned that the story about capitalism we’d been hearing for all these years wasn’t really true. Markets don’t really run themselves, and debts can be finagled out of existence if you really want them to be.
“But if that’s true, if debt is just a promise and promises can be renegotiated, then if democracy is going to mean anything, it has to mean that it’s us, the public, that gets the ultimate say over how that happens – not some hedge fund manager.”
from https://davidgraeber.org/articles/david-graeber-studied-5000-years-of-debt/
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Krugman https://www.nytimes.com/2023/05/19/opinion/government-debt-pay-off.html
https://www.nytimes.com/2012/01/02/opinion/krugman-nobody-understands-debt.html?module=inline
https://www.thebigquestions.com/2012/01/03/actually-we-owe-it-all-to-ourselves/
https://www.reddit.com/r/politics/comments/nzqyi/paul_krugman_nobody_understands_debt_if_your/