"Japan looks even more unstable than the US"
Nick Rowe writes about the bond vigilantes, saying that, if they strike, things would be bad for the US. This represents the conventional wisdom, and would be true if the US was a currency user in the denomination of its debt. But it is not -- US Government debt is denominated in US dollars, and the US Govt can print all the dollars it needs. In fact, every act of US Govt spending is US$ creation, and every act of US Govt taxation is US$ un-creation.
Nick's post is filled with funny lines that follow the logic of conventional macro, but hear how they sound for yourself:
A large attack by the bond vigilantes would be a bad thing, because it would increase Aggregate Demand too muchReally? The US is struggling to exit from a recession caused by people not having enough money, and a bond vigilante attack is supposed to help this how?
The longer the US stays in recession, with a large budget deficit, the bigger the debt will grow.Japan's been treading water now for 30 years. At this point it's gone way beyond stable, past stagnant, and might be fairly characterized as petrified. But Nick thinks all this unchangingness is somehow a sign of changes just around the corner. Why?
This does not look to me to be a very stable system. And the longer the bond vigilantes wait before attacking, the less stable it looks.
Japan looks even less stable than the US.
To my mind, this reinforces the urgency for something like NGDP targeting. We don't want to wait for the bond vigilantes.NGDP targeting works by the Fed announcing a particular NGDP, but having no tools or mechanisms in place to actually move the economy towards the target. Sort of like 1) announce NGDP target, 2) ??? 3) Profit!
The US continued to struggle with an economy that is overly indebted. The fasted way to de-leverage the economy would simply be to pump more money into it. The only source of new net money is the US Govt, and it pumps money in through spending, and out via taxes. Our deficit is too small, and it needs to be bigger.