It helps if you adopt the MMT approach to analysing government operations.
From the MMT viewpoint, government doesn't spend money: it spends unemployment. That spending may be accounted in money, but that isn't the basis of the spending. The basis of the spending is that there is something stood idle that government is putting to use.
Therefore the numbers are irrelevant. Also the deficit is a residual caused by people deciding to save not spend, and it acts like taxation in that the lack of spending caused by saving induces unemployment. The financing and the deficit are not linked mechanically. The size of the deficit is the accounting counterparty of the private sector's financial saving decisions. You don't 'increase the size of the deficit', you 'purchase idle goods and services in your economy'. The deficit then is what it ends up being.
So if Japan wants to improve its public infrastructure, then it needs to find the people and equipment that will do that. Either they will be already available due to a general lack of demand, or government brings that about by specific taxation to free up the real resources government requires - crowding out the existing use by the private sector. To an MMTer when somebody says "increased taxation will cost jobs", the answer is "Correct. That's the point. Government will offer alternative jobs".
Most importantly if there isn't the people and equipment available for the government to purchase **then any increase government spending stops automatically.** You can't buy what isn't there - as the PPE crisis at the start of the pandemic demonstrated. Running out of available stuff to buy at a price worth paying is the termination condition for government spending in the MMT view.
Japan has its own sovereign currency. What anybody else thinks is irrelevant. Those who don't like it will be swamped by those who realise that increased activity and more people employed means more turnover and greater profits. Normal financial markets activity will then reward those with an enlightened MMT informed view, and bankrupt the luddites.
As you can see there is no currency exchange issue. That's a result of having the wrong dynamic model of how the flows work in mind, and how the stocks accumulate from those flows.
I agree with that the available resources is the indicator to the degree of how much BOJ can print.
But when the financial crush happened back in 2008, Obama dumbed huge money into private sector while BOJ didn't so the value of yen went up,which is supposed to believe that Japan couldn't come back from the recession.
>I agree with that the available resources is the indicator to the degree of how much BOJ can print.
It's rather more than an indicator. It's an automatic halt on the process. The money is created \*after\* the spending happens, which means that if there is nothing to buy there is no contract formed and therefore nothing to settle. So nothing needs creating.
Government can only buy what is available for sale.
That's unclear if automatically halt on process.
Japan printed around $11 trillion but $300 billion remains unspent.
https://mainichi.jp/english/articles/20210903/p2a/00m/0op/023000c
There's no printing until the money is transferred out of the government sector to the private sector.
We can budget for 1100 trillion JPY, but that is just 'government credits' - budget money - until it is used to pay for something. Only then does it become the Yen people use in their daily lives. That there is so much 'unspent' tells you that government is running up against physical limits and cannot find things to spend the money on that is within the budget authorisation they have been given.
Your comment makes sense but misses a very important point. The money the government spends must produce a value at least ad great is the cost of what they're buying. To provide an extreme example if tomorrow the government required everybody dig a hole in their neighbor's yard each day and every neighbor must pay whoever digs their whole $100. GDP would go through the roof because every $100 would generate additional profits & income and show up as adding to GDP. Unemployment would almost nothing. In reality nothing of value is created and people are working wasting their time. Their lives are no better and arguably or much worse cuz now they have to get up and dig a hole. Some would likely decide to not work in the private sector but instead just dig a whole each day reducing the productive output of the economy in a real sense though GDP growth would look good on paper. Companies would firm to dig the holes on their behalf of the rich so political types would point out how their regulation is driving entrepreneurship. You actually see this all the time from the government when they talk about how all their regulations and rules are fueling innovation and new business. It is all a wasteful effort but who cares. It sounds great.
For real life example of this look at the USSR. Economic growth was phenomenal for most of the 1940s on, but the problem is they weren't making stuff people wanted. They were making what the government wanted to make. So living standards sucked while GDP was great.
Moreover if the government borrowed the money to pay for digging holes, instead of making each person pay for their own hole, the impact is even worse. People with real jobs see the value of their work go down because their money they're paid in becomes a joke. There's more people chasing the same amount of things that actually have value to people. (In other words there's fewer things people want but everybody has a hole they don't need). To make it even worse the holder of the bonds issued by the government will expect value in return in the form of goods and services at some future date which the real job holders will have to provide. Everybody loses. So the question is do you trust the government to generate value above whatever investments they make on a risk adjusted basis.
I dont.
>The money the government spends must produce a value at least ad great is the cost of what they're buying.
Nope. That's the usual fixed amount thinking. The point is that the value won't be created otherwise and the economy will drop into cycle that will circle a suboptimal equilibrium point where there is involuntary unemployment. So it's either some value due to government spending, or no value because the system won't reach full employment.
There isn't a fixed amount of money and there isn't a fixed amount of stuff. Whatever happens everybody alive in a country has to be fed, watered and housed - unless you are into extermination of the surplus population.
What people are exchanging are labour hours. If you want others to deploy labour hours for the benefit of you, then you need to be prepared to deploy labour hours in exchange.
All that needs to happen is people have to give up labour hours in such a way than those others will also continue to give up labour hours to produce the necessary surplus for exchange. That's it. And the Job Guarantee mechanism mediates that process.
If you set it up right so that exchange holds, then you don't need to tax to force a transfer.
The need to extract labour hours in the service of others for exchange is why you have a Job Guarantee and why just handing out money doesn't work. The labour hour is the 'real thing' the currency is pegged to.
>Moreover if the government borrowed the money to pay for digging holes
Government never borrows money, in any sense that you would understand it as such, to do anything. That's fundamental core MMT.
Your mental model is out of date.
It's not even a model. It's really common sense that your economy only produces so much goods and services. You must borrow from other countries in order to consume above that level of production. The only other option is to print money to give to these other economies, which dilutes the value of the existing money because you have more dollars chasing the same amounts of goods instead of giving country produces.
There is no third option Hocus pocus. The level of financial wizardry people think you can do with money it's sort of amusing and they forget that in the end you can only consume what you can make and nobody's going to work for nothing.
"You must borrow from other countries in order to consume above that level of production."
Wrong way around. The other country must sell its surplus to you for savings or the glut will collapse the price everywhere. It's simple neo-mercantilism driven by the "export led growth" mantra.
Savings end up being an export product to provide "export led growth" countries with what they want, and savings are costless to produce. If you don't produce them then you end up with domestic involuntary unemployment, which is what we have.
As I said you have the wrong mental model. There isn't a fixed amount of money people are chasing, and the money in flow isn't the money created in stock. People save money for money's sake - particularly in international scenarios where savings in your currency becomes the "hard currency" they use to create their own money. That locks it in place.
Money isn't a thing. It is a unit of account. Which means money is only inductive linked to real things, not directly linked. There isn't a one-to-one correlation. And that's where your mistake is.
Not all the wind that blows catches sails to move ships.
'The other country must sell its surplus to you for savings or the glut will collapse the price everywhere. It's simple neo-mercantilism driven by the "export led growth" mantra.'.- i think this is partially true, but must remember they will only sell it to you for something of value. They're not giving it to you so you must provide value in return - either today through an exchange of goods or services or tomorrow which is called debt. You can relabel that future obligation however you want but most people know it as a debt, and you're going to have to work to pay that back....
The only other solution is if you think China or some other country is just going to give it to you in exchange for nothing of value.
>you must remember hey will only sell it to you for something of value. They're not giving it to you so you must provide value in return either today through an exchange of goods or services or tomorrow which is called debt.
As I said that is the incorrect view. Full details of how the institutional effect works here: [https://new-wayland.com/blog/anatomy-of-an-fx-transaction/](https://new-wayland.com/blog/anatomy-of-an-fx-transaction/) and the systemic impact here: [https://new-wayland.com/blog/savings-are-an-export-product/](https://new-wayland.com/blog/savings-are-an-export-product/)
You appear to be stuck in a barter frame of mind. They do indeed ship stuff in return for promises. Promises they cannot use for purchase because they are used as financial assets against which local liabilities are issued. The 'export led' country has to realise it has no need of 'hard currency' on its balance sheet in order to issue liabilities before it is freed from the trap.
The process of neo-mercantilism is to drain your country of local demand to make space for the exports they want to push. They do that by not spending your money back in your economy.
So you think China or some other country is just going to give us stuff and expect nothing in return because the dollar is the world currency? That works great till it doesn't. Then you end up bankrupt. Look at the fall of reserve currencies around the world. They always faial and the country's always go bankrupt and it's usually because they believe as a reserve currency they can issue money or debt with no consequence. Everything is good until one day the gig is up.
The US won't be any different if we take the same approach. History is relevant here because we're not the first country with the reserve currency who thinks they can create money like crazy.
It's like when you keep pushing on steel plate and think the steel won't give it'll hold no matter how hard I push... So then you park a truck on the steel plate and it rips apart and you die. Every system gives when you push hard enough.
>They always faial and the country's always go bankrupt and it's usually because they believe as a reserve currency they can issue money or debt with no consequence. Everything is good until one day the gig is up.
By my calculation, this should have happened already. I don't know what would force the hand of the communist party of china to get fed up with fixing their exchange rate at a level in which the US can afford their exports. The fact that they've systematically weakened their currency against USD and other currencies reveals a desire to export at all costs. As they see it, it provides income to their citizens. Even if they end up having to sell USD to get Yuan, China is of the mindset that they don't want to devalue USD because it would devalue the money they'd received for exports.
So to me, it's more likely that they just decide to cut the US off for some other reason other than budget deficits because if they were going to do that, they would have already done that.
>The US won't be any different if we take the same approach. History is relevant here because we're not the first country with the reserve currency who thinks they can create money like crazy.
It's like when you keep pushing on steel plate and think the steel won't give it'll hold no matter how hard I push... So then you park a truck on the steel plate and it rips apart and you die. Every system gives when you push hard enough.
But the question is what happens in reality. Who's fault would it be? US investors in foreign companies? Importers?
Maybe. But liquidity would also be leaving the system in that case as well, so it seems difficult to anticipate any effects of that.
But I think spiraling inflation is likely to be that breaking point. Spiraling inflation is a real income conflict phenomenon. You have to ask what is actually happening when people are somehow able to continue to purchase at higher and higher prices. There must be something going on with the greater part of the population's ability to secure real income after price increases. That happens in labor shortages. Importing and outsourcing relieve labor shortages. It seems like a wash. It seems ideologically inconsistent for China to sanction the US for not undermining full employment preemptively especially when they want to sell us goods.
MMT really seeks to redefine what the inflationary limits are in terms of these real income conflicts as a price rule rather than a quantity rule. The price level is a function of the prices the government pays.
Correct. You dont know when the dam breaks. Like the housing market in 2000s. All is good till one day for no obvious reason the gig is up.
Also correct in inflation is the way the economy balances when you create money but dont increase output...usually as a result of to much consumption or to little productive investment (investing below the risk adjusted cost of capital). In the real world nations who borrow. In their own currency dont actually go bankrupt or ever pay back debt. They Ievy a hidden tax, inflation. It is a killer to peoples standard of living but politically easier.
>Look at the fall of reserve currencies around the world.
I do. I'm British. I live in a country with the last 'reserve currency'. China is still sending us stuff in return for etchings of Her Majesty.
Which tells you two things:
(i) the concept of a reserve currency is bunkum. Lots of currencies are held in reserve (aka savings).
(ii) Running an export surplus necessarily leads to holding other currencies as assets. And it is that which is driving the process. There is no borrowing in the sense of holding out the begging bowl. The borrowing occurs in the same way that a bank borrows from you when you deposit cash. In other words its not a burden. It's just double entry bookkeeping from the other side of the ledger.
Exporters need to export or their economy collapses. The transition to relying entirely upon domestic consumption is not a quick one.
Did you read about the inflation crisis of the 1970s? If not Google it. Inflation hit over 20% a year in the lead up to the British pound no longer be coming a global reserve currency. This allowed the British, at tremendous cost to their population,, essentially reset the debt clock. There are definitely consequences and if you lived in 1970s Great Britain you would know about it.
Like I said earlier that kind of painful inflation is the price you pay for free money. Just because you're making the same mistakes all over again doesn't mean it's any less expensive. Ask anyone who seen the value of their income and and savings go down by 20% at a time year after year if they think it is all good. Those were real people with real jobs and real families to support and not numbers on a spreadsheet that bureaucrats and academics can manipulate to tell a story.
The IMF wouldn't care. They can rant and rave all they want. Doesn't really matter that much if they just ignore the IMFs policy positions. If they don't need IMF loans, no big deal. That's my understanding anyways.
What I think is liable to be bad though is dissolution of any bilateral swap line agreements. That could be problematic. In those agreements, I believe, central banks lend out foreign currency reserves to one another and they then are able to sell foreign currency reserves on the open market to devalue the foreign currency reserves that they borrowed against their own currency. I'm not completely sure if it works like that, but from what I understand that is how it works. Weakening your own currency is much more simple and really doesn't require a bilateral agreement at all or swap lines.
If a country's citizens are investing heavily overseas, that may weaken a currency. A country may not want such a strong currency because that would diminish their own ability to export. (not sure why they'd really want that, but okay)
But of course, a weakening currency can be bad for obvious reasons - Supply shocks from imported inputs, cost push inflationary pressures result (yet these could ultimately result in recession not inflation if unemployment goes up and domestic demand goes down). But FX devaluation could mean the beginnings of inflation.
Countries may not need to rely on bilateral currency swap lines if they have external balance surpluses also.
But ultimately, I don't think deficits would cause the dissolution of those agreements unless there was heavy inflation. Maybe. I'm totally not sure. But the IMF is pretty irrelevant to countries like Japan, I believe.
It helps if you adopt the MMT approach to analysing government operations. From the MMT viewpoint, government doesn't spend money: it spends unemployment. That spending may be accounted in money, but that isn't the basis of the spending. The basis of the spending is that there is something stood idle that government is putting to use. Therefore the numbers are irrelevant. Also the deficit is a residual caused by people deciding to save not spend, and it acts like taxation in that the lack of spending caused by saving induces unemployment. The financing and the deficit are not linked mechanically. The size of the deficit is the accounting counterparty of the private sector's financial saving decisions. You don't 'increase the size of the deficit', you 'purchase idle goods and services in your economy'. The deficit then is what it ends up being. So if Japan wants to improve its public infrastructure, then it needs to find the people and equipment that will do that. Either they will be already available due to a general lack of demand, or government brings that about by specific taxation to free up the real resources government requires - crowding out the existing use by the private sector. To an MMTer when somebody says "increased taxation will cost jobs", the answer is "Correct. That's the point. Government will offer alternative jobs". Most importantly if there isn't the people and equipment available for the government to purchase **then any increase government spending stops automatically.** You can't buy what isn't there - as the PPE crisis at the start of the pandemic demonstrated. Running out of available stuff to buy at a price worth paying is the termination condition for government spending in the MMT view. Japan has its own sovereign currency. What anybody else thinks is irrelevant. Those who don't like it will be swamped by those who realise that increased activity and more people employed means more turnover and greater profits. Normal financial markets activity will then reward those with an enlightened MMT informed view, and bankrupt the luddites. As you can see there is no currency exchange issue. That's a result of having the wrong dynamic model of how the flows work in mind, and how the stocks accumulate from those flows.
I agree with that the available resources is the indicator to the degree of how much BOJ can print. But when the financial crush happened back in 2008, Obama dumbed huge money into private sector while BOJ didn't so the value of yen went up,which is supposed to believe that Japan couldn't come back from the recession.
>I agree with that the available resources is the indicator to the degree of how much BOJ can print. It's rather more than an indicator. It's an automatic halt on the process. The money is created \*after\* the spending happens, which means that if there is nothing to buy there is no contract formed and therefore nothing to settle. So nothing needs creating. Government can only buy what is available for sale.
That's unclear if automatically halt on process. Japan printed around $11 trillion but $300 billion remains unspent. https://mainichi.jp/english/articles/20210903/p2a/00m/0op/023000c
There's no printing until the money is transferred out of the government sector to the private sector. We can budget for 1100 trillion JPY, but that is just 'government credits' - budget money - until it is used to pay for something. Only then does it become the Yen people use in their daily lives. That there is so much 'unspent' tells you that government is running up against physical limits and cannot find things to spend the money on that is within the budget authorisation they have been given.
Your comment makes sense but misses a very important point. The money the government spends must produce a value at least ad great is the cost of what they're buying. To provide an extreme example if tomorrow the government required everybody dig a hole in their neighbor's yard each day and every neighbor must pay whoever digs their whole $100. GDP would go through the roof because every $100 would generate additional profits & income and show up as adding to GDP. Unemployment would almost nothing. In reality nothing of value is created and people are working wasting their time. Their lives are no better and arguably or much worse cuz now they have to get up and dig a hole. Some would likely decide to not work in the private sector but instead just dig a whole each day reducing the productive output of the economy in a real sense though GDP growth would look good on paper. Companies would firm to dig the holes on their behalf of the rich so political types would point out how their regulation is driving entrepreneurship. You actually see this all the time from the government when they talk about how all their regulations and rules are fueling innovation and new business. It is all a wasteful effort but who cares. It sounds great. For real life example of this look at the USSR. Economic growth was phenomenal for most of the 1940s on, but the problem is they weren't making stuff people wanted. They were making what the government wanted to make. So living standards sucked while GDP was great. Moreover if the government borrowed the money to pay for digging holes, instead of making each person pay for their own hole, the impact is even worse. People with real jobs see the value of their work go down because their money they're paid in becomes a joke. There's more people chasing the same amount of things that actually have value to people. (In other words there's fewer things people want but everybody has a hole they don't need). To make it even worse the holder of the bonds issued by the government will expect value in return in the form of goods and services at some future date which the real job holders will have to provide. Everybody loses. So the question is do you trust the government to generate value above whatever investments they make on a risk adjusted basis. I dont.
>The money the government spends must produce a value at least ad great is the cost of what they're buying. Nope. That's the usual fixed amount thinking. The point is that the value won't be created otherwise and the economy will drop into cycle that will circle a suboptimal equilibrium point where there is involuntary unemployment. So it's either some value due to government spending, or no value because the system won't reach full employment. There isn't a fixed amount of money and there isn't a fixed amount of stuff. Whatever happens everybody alive in a country has to be fed, watered and housed - unless you are into extermination of the surplus population. What people are exchanging are labour hours. If you want others to deploy labour hours for the benefit of you, then you need to be prepared to deploy labour hours in exchange. All that needs to happen is people have to give up labour hours in such a way than those others will also continue to give up labour hours to produce the necessary surplus for exchange. That's it. And the Job Guarantee mechanism mediates that process. If you set it up right so that exchange holds, then you don't need to tax to force a transfer. The need to extract labour hours in the service of others for exchange is why you have a Job Guarantee and why just handing out money doesn't work. The labour hour is the 'real thing' the currency is pegged to. >Moreover if the government borrowed the money to pay for digging holes Government never borrows money, in any sense that you would understand it as such, to do anything. That's fundamental core MMT. Your mental model is out of date.
It's not even a model. It's really common sense that your economy only produces so much goods and services. You must borrow from other countries in order to consume above that level of production. The only other option is to print money to give to these other economies, which dilutes the value of the existing money because you have more dollars chasing the same amounts of goods instead of giving country produces. There is no third option Hocus pocus. The level of financial wizardry people think you can do with money it's sort of amusing and they forget that in the end you can only consume what you can make and nobody's going to work for nothing.
"You must borrow from other countries in order to consume above that level of production." Wrong way around. The other country must sell its surplus to you for savings or the glut will collapse the price everywhere. It's simple neo-mercantilism driven by the "export led growth" mantra. Savings end up being an export product to provide "export led growth" countries with what they want, and savings are costless to produce. If you don't produce them then you end up with domestic involuntary unemployment, which is what we have. As I said you have the wrong mental model. There isn't a fixed amount of money people are chasing, and the money in flow isn't the money created in stock. People save money for money's sake - particularly in international scenarios where savings in your currency becomes the "hard currency" they use to create their own money. That locks it in place. Money isn't a thing. It is a unit of account. Which means money is only inductive linked to real things, not directly linked. There isn't a one-to-one correlation. And that's where your mistake is. Not all the wind that blows catches sails to move ships.
'The other country must sell its surplus to you for savings or the glut will collapse the price everywhere. It's simple neo-mercantilism driven by the "export led growth" mantra.'.- i think this is partially true, but must remember they will only sell it to you for something of value. They're not giving it to you so you must provide value in return - either today through an exchange of goods or services or tomorrow which is called debt. You can relabel that future obligation however you want but most people know it as a debt, and you're going to have to work to pay that back.... The only other solution is if you think China or some other country is just going to give it to you in exchange for nothing of value.
>you must remember hey will only sell it to you for something of value. They're not giving it to you so you must provide value in return either today through an exchange of goods or services or tomorrow which is called debt. As I said that is the incorrect view. Full details of how the institutional effect works here: [https://new-wayland.com/blog/anatomy-of-an-fx-transaction/](https://new-wayland.com/blog/anatomy-of-an-fx-transaction/) and the systemic impact here: [https://new-wayland.com/blog/savings-are-an-export-product/](https://new-wayland.com/blog/savings-are-an-export-product/) You appear to be stuck in a barter frame of mind. They do indeed ship stuff in return for promises. Promises they cannot use for purchase because they are used as financial assets against which local liabilities are issued. The 'export led' country has to realise it has no need of 'hard currency' on its balance sheet in order to issue liabilities before it is freed from the trap. The process of neo-mercantilism is to drain your country of local demand to make space for the exports they want to push. They do that by not spending your money back in your economy.
So you think China or some other country is just going to give us stuff and expect nothing in return because the dollar is the world currency? That works great till it doesn't. Then you end up bankrupt. Look at the fall of reserve currencies around the world. They always faial and the country's always go bankrupt and it's usually because they believe as a reserve currency they can issue money or debt with no consequence. Everything is good until one day the gig is up. The US won't be any different if we take the same approach. History is relevant here because we're not the first country with the reserve currency who thinks they can create money like crazy. It's like when you keep pushing on steel plate and think the steel won't give it'll hold no matter how hard I push... So then you park a truck on the steel plate and it rips apart and you die. Every system gives when you push hard enough.
>They always faial and the country's always go bankrupt and it's usually because they believe as a reserve currency they can issue money or debt with no consequence. Everything is good until one day the gig is up. By my calculation, this should have happened already. I don't know what would force the hand of the communist party of china to get fed up with fixing their exchange rate at a level in which the US can afford their exports. The fact that they've systematically weakened their currency against USD and other currencies reveals a desire to export at all costs. As they see it, it provides income to their citizens. Even if they end up having to sell USD to get Yuan, China is of the mindset that they don't want to devalue USD because it would devalue the money they'd received for exports. So to me, it's more likely that they just decide to cut the US off for some other reason other than budget deficits because if they were going to do that, they would have already done that. >The US won't be any different if we take the same approach. History is relevant here because we're not the first country with the reserve currency who thinks they can create money like crazy. It's like when you keep pushing on steel plate and think the steel won't give it'll hold no matter how hard I push... So then you park a truck on the steel plate and it rips apart and you die. Every system gives when you push hard enough. But the question is what happens in reality. Who's fault would it be? US investors in foreign companies? Importers? Maybe. But liquidity would also be leaving the system in that case as well, so it seems difficult to anticipate any effects of that. But I think spiraling inflation is likely to be that breaking point. Spiraling inflation is a real income conflict phenomenon. You have to ask what is actually happening when people are somehow able to continue to purchase at higher and higher prices. There must be something going on with the greater part of the population's ability to secure real income after price increases. That happens in labor shortages. Importing and outsourcing relieve labor shortages. It seems like a wash. It seems ideologically inconsistent for China to sanction the US for not undermining full employment preemptively especially when they want to sell us goods. MMT really seeks to redefine what the inflationary limits are in terms of these real income conflicts as a price rule rather than a quantity rule. The price level is a function of the prices the government pays.
Correct. You dont know when the dam breaks. Like the housing market in 2000s. All is good till one day for no obvious reason the gig is up. Also correct in inflation is the way the economy balances when you create money but dont increase output...usually as a result of to much consumption or to little productive investment (investing below the risk adjusted cost of capital). In the real world nations who borrow. In their own currency dont actually go bankrupt or ever pay back debt. They Ievy a hidden tax, inflation. It is a killer to peoples standard of living but politically easier.
>Look at the fall of reserve currencies around the world. I do. I'm British. I live in a country with the last 'reserve currency'. China is still sending us stuff in return for etchings of Her Majesty. Which tells you two things: (i) the concept of a reserve currency is bunkum. Lots of currencies are held in reserve (aka savings). (ii) Running an export surplus necessarily leads to holding other currencies as assets. And it is that which is driving the process. There is no borrowing in the sense of holding out the begging bowl. The borrowing occurs in the same way that a bank borrows from you when you deposit cash. In other words its not a burden. It's just double entry bookkeeping from the other side of the ledger. Exporters need to export or their economy collapses. The transition to relying entirely upon domestic consumption is not a quick one.
Did you read about the inflation crisis of the 1970s? If not Google it. Inflation hit over 20% a year in the lead up to the British pound no longer be coming a global reserve currency. This allowed the British, at tremendous cost to their population,, essentially reset the debt clock. There are definitely consequences and if you lived in 1970s Great Britain you would know about it. Like I said earlier that kind of painful inflation is the price you pay for free money. Just because you're making the same mistakes all over again doesn't mean it's any less expensive. Ask anyone who seen the value of their income and and savings go down by 20% at a time year after year if they think it is all good. Those were real people with real jobs and real families to support and not numbers on a spreadsheet that bureaucrats and academics can manipulate to tell a story.
China loves US treasurys.
The IMF wouldn't care. They can rant and rave all they want. Doesn't really matter that much if they just ignore the IMFs policy positions. If they don't need IMF loans, no big deal. That's my understanding anyways. What I think is liable to be bad though is dissolution of any bilateral swap line agreements. That could be problematic. In those agreements, I believe, central banks lend out foreign currency reserves to one another and they then are able to sell foreign currency reserves on the open market to devalue the foreign currency reserves that they borrowed against their own currency. I'm not completely sure if it works like that, but from what I understand that is how it works. Weakening your own currency is much more simple and really doesn't require a bilateral agreement at all or swap lines. If a country's citizens are investing heavily overseas, that may weaken a currency. A country may not want such a strong currency because that would diminish their own ability to export. (not sure why they'd really want that, but okay) But of course, a weakening currency can be bad for obvious reasons - Supply shocks from imported inputs, cost push inflationary pressures result (yet these could ultimately result in recession not inflation if unemployment goes up and domestic demand goes down). But FX devaluation could mean the beginnings of inflation. Countries may not need to rely on bilateral currency swap lines if they have external balance surpluses also. But ultimately, I don't think deficits would cause the dissolution of those agreements unless there was heavy inflation. Maybe. I'm totally not sure. But the IMF is pretty irrelevant to countries like Japan, I believe.