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Posted by Warren Mosler (207.69.137.37) on 12:34:30 03/27/04
In Reply to: National Review Online - Questions posted by Uwe Burkheiser
: Warren, in order not to be blamed for quoting out of context the following is a full paragraph from your article in
: National Review Online, Feb 24, 2004
: February 24, 2004, 8:46 a.m.
: Debtor Nation, Without the Rhetoric
: By Warren Mosler and Thomas E. Nugent
: When foreigners hold Treasury securities, the U.S. government is said to have foreign creditors, and the U.S. is said to be a debtor nation. While this is true by definition, a look past the rhetoric at what the U.S. government actually owes the holder of Treasury securities is revealing. The government promises that, at maturity, the foreigner's security account at the Fed will be debited, and his bank's reserve account at the Fed will be credited for the balance due. In other words, the U.S. government's promise is only that, at maturity of the Treasury security, a non-interest bearing reserve balance will be substituted for an interest bearing Treasury security. This transaction is not a potential source of financial stress for the government. Remember, the U.S. is no longer on a gold standard meaning that the dollar is not redeemable at the government for gold or any other good or service. Holders of deposits or Treasury securities can't demand the surrender of our national parks, or any other U.S. asset.
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: I have highlighted the sentences to which my questions are related:
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: 1. Let s forget the national parks. Why would a foreign holder of US deposits not be able to acquire US assets (and goods and services)?
He can, but only from willing sellers at market prices, not via govt. convertibility promises.
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: 2. How would his ability to do so affect the standard of living in the US?
Exports are a cost that per se reduce standards of living
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: 3. Is it correct that the Treasury cedes future (tax-)income with the issuance of Treasury securities to the holder of that claim?
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Yes, the holder of treasury securities can use the proceeds for future tax payments.
: 4. If tax increases are no option how will the Treasury pay for the Treasury securities at maturity? In other words is the Treasury simply able to credit the balance due on the Fed account (as outlined above) without issuing new Treasury securities?
Yes, at maturity the security account is debited and a member bank reserve account credited. Again, there may be 'self imposed constraints' but no operational constraints.
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: 5. Last not least: How would the standard of living in the US be affected if foreigners chose to put their savings lets say in Yen, RMB or Euro?
That would likely reduce US imports and thereby reduce the US standard of living, all else equal.
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: Thanks in advance
: Uwe
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