US debt will matter as all debt matters at some point. DLS

And the world is willing to hold (buy) less and less U.S. debt = big problems!

We are buying US debt because US dollar is still reserve currency and you still get yield. If that changes, we here in EU wont buy that much. For now I can hedge my gold silver pos with us debt. This give me access to the dollar also. As euro will default I wont lose much.

Deficits matter indirectly in big ways. Whether artificial or not, if you have zero or close to zero rates, that is forgone interest income not going to the investors, and then not being spent back into the economy. The US can get away with running massive deficits, while artificially suppressing rates in the process (financed by investors or gobbled up with future QE/Monetization), but the cost of that decision is lower income to investors and a lower spending level than if bond rates were higher.

Victor J. - See Sept. 19th interview with Mr. Larsen. DLS

There was one small error in the Reinhart and Rogoff paper that is being used by MMT adherents to discredit their general thesis. I do not believe the small error in any way negates what their research showed about excessive government debt levels.

Interesting that you pointed out the data inconsistencies in R & R’s work. I did some reading on this when the matter first came up and found that the data inconsistencies, while true, were not germane to their thesis or to the core findings of their work. Hope this helps.

Let me start off by saying that I do not completely agree with MMT as they believe that this theory can be applied universally to any country, I on other hand believe that it can only applied to the US and to a lesser extent the UK. That said, the problem that I believe everyone is getting tripped on is how trade plays a role in repaying debt. This is the savings identity (T-G)+(S-I)+(X-M)=0 Where Public savings consists of T for taxes, G for government spending. Private savings consists of S for household and corporate savings, I is Investment. Foreign savings consists of X is exports and M is imports. If we rearrange this equation we get (T-G)+(S-I)=(M-X), which essentially means a surplus in public and private savings leads to a deficit in foreign savings. In the case of the US has a deficit in public savings and private savings therefore its debt is paid for through foreign savings. What separates the US from other countries is that it actually has the production capacity to produce all of its own good, which is what happened up until it began openings up its markets in the early 1980s. The reason why it doesn’t is because other countries through the purchase of government debt or other purchases of US dollar denominated assets undervalue their currency in order export goods to the US. Keep in mind, the liquidity of the treasury is not being used as an investment vehicle but rather as a savings vehicle in this instance as countries try avoid currency devaluation the result in trade imbalance through the aforementioned purchases. Therefore if other countries decided they no longer wanted to purchase treasury, it would lead to the appreciation of the countries respective currency, reduce a boost of Americans imports, as well as reduction of exports. Keep in mind, if it weren’t for this system of importing to the US and then buying its treasury, this how these countries would get repaid in the form of US exports. T

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