I would argue that any default from the US on its debt - and a restructuring, which is part of the Miran Plan to change the Global Trading System, is technically a default - would be the United States’ second default. The first was on 15 August 1971 when it unilaterally reneged on its promise to pay dollar asset holders in gold at the fixed rate of US$35/oz. It made the argument that the dollar was as good as gold and everyone fell in behind but, to my mind, it was definitely a breach of a long-standing obligation. In other words, a default.
Yet Jim probably thinks an independent Scotland wouldn’t have a debt crisis, even though we would initially have no central bank and we clearly have a large deficit, which any sane economist acknowledges. Our public spend has contributed handsomely to they UK deficit. There would be turbo austerity for at least a generation.
### Critique of Jim Sillars' Essay Through the Lens of *The Deficit Myth* by Stephanie Kelton
Stephanie Kelton’s *The Deficit Myth* dismantles many of the conventional assumptions about government debt and deficits that underpin Jim Sillars' essay. Here’s how Kelton’s MMT (Modern Monetary Theory) framework would respond to Sillars' arguments:
---
### **1. "The U.S. is Drowning in Debt" → The Deficit Myth**
Sillars frames the U.S. national debt (122% of GDP) as an existential threat, warning of a "day of reckoning." Kelton would counter:
- **Currency issuers can’t run out of money.** The U.S. government, which borrows in its own currency, cannot go bankrupt in dollars. Unlike households or eurozone nations, it can always create money to service debt.
- **Debt ≠ Crisis.** Japan’s debt-to-GDP ratio (260%) hasn’t triggered collapse because it borrows in yen. The real constraint is inflation, not debt size.
- **"Debt is Just Savings."** U.S. Treasuries are assets for investors (pensions, foreign central banks). The "debt" is the private sector’s wealth.
**Kelton’s takeaway:** The focus should be on *what deficits fund* (e.g., productive investment vs. tax cuts for the rich), not arbitrary debt ceilings.
---
### **2. "Bond Buyers Might Flee" → The Deficit Myth**
Sillars worries that rising bond yields (4.937% for 30-year Treasuries) signal declining confidence, risking an "American Armageddon." Kelton would argue:
- **The Fed Controls Rates.** If investors balk, the Fed can buy bonds directly (quantitative easing) or cap yields (as in WWII). The U.S. doesn’t *need* private bondholders.
- **Dollar Dominance Protects Demand.** As long as the dollar is the global reserve currency, demand for Treasuries will remain strong. BRICS alternatives (e.g., yuan) lack depth and liquidity.
- **Higher Yields ≠ Doom.** They reflect inflation expectations, not solvency risk. The U.S. can always pay its debts in dollars.
**Kelton’s takeaway:** Fear of bond vigilantes is overblown for monetary sovereigns. The real risk is inflation, not funding.
---
### **3. "The Debt Ceiling is Necessary" → The Deficit Myth**
Sillars describes the debt ceiling as a failed tool for fiscal discipline, raised 78 times since 1960. Kelton would add:
- **The Debt Ceiling is Theater.** It’s a self-imposed political constraint, not an economic necessity. Australia and Canada abolished theirs without issue.
- **Default is a Political Choice.** The U.S. could mint a platinum coin or prioritize payments (though Kelton opposes this brinkmanship).
**Kelton’s takeaway:** The debt ceiling is a "relic of the gold standard" that should be scrapped.
---
### **4. "Geopolitical Power is at Stake" → The Deficit Myth**
Sillars warns that the dollar’s reserve status is at risk if debt spirals. Kelton would clarify:
- **The Dollar’s Power is Structural.** No competitor currency (euro, yuan) offers comparable stability, liquidity, and depth.
- **U.S. Deficits Supply Global Dollars.** Foreign nations hold Treasuries *because* the U.S. runs deficits. This isn’t a bug—it’s a feature of the system.
**Kelton’s takeaway:** The U.S. should focus on maintaining real economic strength (innovation, productivity), not obsess over debt levels.
---
### **5. "Politicians Ignore Debt" → The Deficit Myth**
Sillars laments that neither party addresses debt. Kelton would reply:
- **They’re Asking the Wrong Question.** Instead of "How will we pay for it?" (a non-issue for currency issuers), they should ask:
- *"Do we have the real resources (labor, materials) to do this?"*
- *"Will this spending cause inflation?"*
- **Trump’s Bill is a Distributional Problem.** Tax cuts + defense spending may overheat the economy or worsen inequality, but they don’t "bankrupt" the U.S.
**Kelton’s takeaway:** Fiscal policy should target full employment and price stability, not arbitrary debt targets.
---
### **Final Verdict: What Kelton Would Say to Sillars**
Sillars’ essay reflects the "deficit myths" Kelton debunks:
1. **The U.S. isn’t "on the slide"—it’s mismanaging its monetary sovereignty.**
2. **Debt fears distract from real issues: inequality, climate change, and productive investment.**
3. **The "day of reckoning" is inflation, not default—and it’s avoidable with smart policy.**
**Kelton’s prescription:**
- Abolish the debt ceiling.
- Use deficits to fund job guarantees, green energy, and infrastructure.
- Tax to control inflation (not to "pay for" spending).
Sillars’ analysis is rooted in scarcity thinking; Kelton’s MMT offers an abundance framework for a currency-issuing government. The real "deficit" is in imagination, not dollars.
I would argue that any default from the US on its debt - and a restructuring, which is part of the Miran Plan to change the Global Trading System, is technically a default - would be the United States’ second default. The first was on 15 August 1971 when it unilaterally reneged on its promise to pay dollar asset holders in gold at the fixed rate of US$35/oz. It made the argument that the dollar was as good as gold and everyone fell in behind but, to my mind, it was definitely a breach of a long-standing obligation. In other words, a default.
Yet Jim probably thinks an independent Scotland wouldn’t have a debt crisis, even though we would initially have no central bank and we clearly have a large deficit, which any sane economist acknowledges. Our public spend has contributed handsomely to they UK deficit. There would be turbo austerity for at least a generation.
### Critique of Jim Sillars' Essay Through the Lens of *The Deficit Myth* by Stephanie Kelton
Stephanie Kelton’s *The Deficit Myth* dismantles many of the conventional assumptions about government debt and deficits that underpin Jim Sillars' essay. Here’s how Kelton’s MMT (Modern Monetary Theory) framework would respond to Sillars' arguments:
---
### **1. "The U.S. is Drowning in Debt" → The Deficit Myth**
Sillars frames the U.S. national debt (122% of GDP) as an existential threat, warning of a "day of reckoning." Kelton would counter:
- **Currency issuers can’t run out of money.** The U.S. government, which borrows in its own currency, cannot go bankrupt in dollars. Unlike households or eurozone nations, it can always create money to service debt.
- **Debt ≠ Crisis.** Japan’s debt-to-GDP ratio (260%) hasn’t triggered collapse because it borrows in yen. The real constraint is inflation, not debt size.
- **"Debt is Just Savings."** U.S. Treasuries are assets for investors (pensions, foreign central banks). The "debt" is the private sector’s wealth.
**Kelton’s takeaway:** The focus should be on *what deficits fund* (e.g., productive investment vs. tax cuts for the rich), not arbitrary debt ceilings.
---
### **2. "Bond Buyers Might Flee" → The Deficit Myth**
Sillars worries that rising bond yields (4.937% for 30-year Treasuries) signal declining confidence, risking an "American Armageddon." Kelton would argue:
- **The Fed Controls Rates.** If investors balk, the Fed can buy bonds directly (quantitative easing) or cap yields (as in WWII). The U.S. doesn’t *need* private bondholders.
- **Dollar Dominance Protects Demand.** As long as the dollar is the global reserve currency, demand for Treasuries will remain strong. BRICS alternatives (e.g., yuan) lack depth and liquidity.
- **Higher Yields ≠ Doom.** They reflect inflation expectations, not solvency risk. The U.S. can always pay its debts in dollars.
**Kelton’s takeaway:** Fear of bond vigilantes is overblown for monetary sovereigns. The real risk is inflation, not funding.
---
### **3. "The Debt Ceiling is Necessary" → The Deficit Myth**
Sillars describes the debt ceiling as a failed tool for fiscal discipline, raised 78 times since 1960. Kelton would add:
- **The Debt Ceiling is Theater.** It’s a self-imposed political constraint, not an economic necessity. Australia and Canada abolished theirs without issue.
- **Default is a Political Choice.** The U.S. could mint a platinum coin or prioritize payments (though Kelton opposes this brinkmanship).
**Kelton’s takeaway:** The debt ceiling is a "relic of the gold standard" that should be scrapped.
---
### **4. "Geopolitical Power is at Stake" → The Deficit Myth**
Sillars warns that the dollar’s reserve status is at risk if debt spirals. Kelton would clarify:
- **The Dollar’s Power is Structural.** No competitor currency (euro, yuan) offers comparable stability, liquidity, and depth.
- **U.S. Deficits Supply Global Dollars.** Foreign nations hold Treasuries *because* the U.S. runs deficits. This isn’t a bug—it’s a feature of the system.
**Kelton’s takeaway:** The U.S. should focus on maintaining real economic strength (innovation, productivity), not obsess over debt levels.
---
### **5. "Politicians Ignore Debt" → The Deficit Myth**
Sillars laments that neither party addresses debt. Kelton would reply:
- **They’re Asking the Wrong Question.** Instead of "How will we pay for it?" (a non-issue for currency issuers), they should ask:
- *"Do we have the real resources (labor, materials) to do this?"*
- *"Will this spending cause inflation?"*
- **Trump’s Bill is a Distributional Problem.** Tax cuts + defense spending may overheat the economy or worsen inequality, but they don’t "bankrupt" the U.S.
**Kelton’s takeaway:** Fiscal policy should target full employment and price stability, not arbitrary debt targets.
---
### **Final Verdict: What Kelton Would Say to Sillars**
Sillars’ essay reflects the "deficit myths" Kelton debunks:
1. **The U.S. isn’t "on the slide"—it’s mismanaging its monetary sovereignty.**
2. **Debt fears distract from real issues: inequality, climate change, and productive investment.**
3. **The "day of reckoning" is inflation, not default—and it’s avoidable with smart policy.**
**Kelton’s prescription:**
- Abolish the debt ceiling.
- Use deficits to fund job guarantees, green energy, and infrastructure.
- Tax to control inflation (not to "pay for" spending).
Sillars’ analysis is rooted in scarcity thinking; Kelton’s MMT offers an abundance framework for a currency-issuing government. The real "deficit" is in imagination, not dollars.
Wednesday 21st May
Standard and Poor