US will have to prove that these big changes are a sogn towards more stability, for others to keep saving in USD. Gold markets are pretty insane nowadays, which makes me think of my own savings.

Sure, "deficit" is crappy political term that mostly serves as a martingale and rallying cry for kayfabe austerity politics. Forgive me for stooping.

I'm really talking about monetary creation/inflation - the part of the budget deficit that is new "loans" from another branch of government (Federal Reserve), plus "loans" from the Federal Reserve into the financial industry to do things like grow the housing bubble.

The belief that USD will continue to be redeemable for best in class future goods (technological widgets, military hardware, trade and military alliances, etc) combined with the stickiness of transaction costs (especially at nation-state scale) is what allows that ongoing monetary inflation without commensurate price inflation.

There's certainly a reasonable concern about what happens when China stops accepting IOUs in return for piles of actual stuff. That doesn't influence though the ability of the US to create what it needs, which is just a function of what resources it can draw on. As Keynes pointed out, anything we can actually do, we can afford.

I'm not actually American, but you get the gist. I've taken the liberty of posting the full passage here since it's so good:

     For some weeks at this hour you have enjoyed the day-dreams of planning. But what about the nightmare of finance? I am sure there have been many listeners who have been muttering: “That’s all very well, but how is it to be paid for?”

    Let me begin by telling you how I tried to answer an eminent architect who pushed on one side all the grandiose plans to rebuild London with the phrase: “Where’s the money to come from?” “The money?” I said. “But surely, Sir John, you don’t build houses with money? Do you mean that there won’t be enough bricks and mortar and steel and cement?”

    “Oh no”, he replied, “of course there will be plenty of all that”.

    “Do you mean”, I went on, “that there won’t be enough labour? For what will the builders be doing if they are not building houses?”

    “Oh no, that’s all right”, he agreed.

    “Then there is only one conclusion. You must be meaning, Sir John, that there won’t be enough architects”. But there I was trespassing on the boundaries of politeness. So I hurried to add: “Well, if there are bricks and mortar and steel and concrete and labour and architects, why not assemble all this good material into houses?”

    But he was, I fear, quite unconvinced. “What I want to know”, he repeated, “is where the money is coming from”.

    To answer that would have got him and me into deeper water than I cared for, so I replied rather shabbily: “The same place it is coming from now”. He might have countered (but he didn’t): “Of course I know that money is not the slightest use whatever. But, all the same, my dear sir, you will find it a devil of a business not to have any …”

    Had I given him a good and convincing answer by saying that we build houses with bricks and mortar, not with money? Or was I only teasing him?

    …

    For one thing, he was making the very usual confusion between the problem of finance for an individual and the problem for the community as a whole …

    The first task is to make sure that there is enough demand to provide employment for everyone. The second task is to prevent a demand in excess of the physical possibilities of supply, which is the proper meaning of inflation. For the physical possibilities of supply are very far from unlimited. Our building programme must be properly proportioned to the resources which are left after we have met our daily needs and have produced enough exports to pay for what we require to import from overseas …

    Where we are using up resources, do not let us submit to the vile doctrine of the nineteenth century that every enterprise must justify itself in pounds, shillings and pence of cash income, with no other denominator of values but this. I should like to see that war memorials of this tragic struggle take the shape of an enrichment of the civic life of every great centre of population …

    Assuredly we can afford this and much more. Anything we can actually do we can afford. Once done, it is there. Nothing can take it from us.

> As Keynes pointed out, anything we can actually do, we can afford

And what if we're currently affording more than what we can actually do? And what of going forward when a lot of what we can do gets afforded by other countries calling in those IOUs (which won't end up being fully repudiated for a bunch of reasons) ?

What does it actually mean to "call in an IOU" in this case? It means use the dollars to buy stuff - so export. Well, that's bad if it extracts too much real value from the economy, but then the economy and the government have various tools at their disposal, from outright banning exports, through export tariffs to importing the stuff to export from another country that has a surplus. It's only a claim insofar as the claimee will deliver; there's no credible higher authority to whinge to that the US isn't playing fair, and the US government is only really answerable to its population.

Except that before we get to the opposite side of excluded-middle situation you're describing, there's a long transition period where the US government doesn't repudiate the IOUs because it wants to remain "business friendly", is dependent on some imports, wants to trade with some countries, its elites want to be able to go to other countries and spend their wealth, etc. You're basically asserting we can always resort to strict economic controls, when that's essentially the opposite of this country's foundation.

You also didn't address my first point that we're likely currently affording more than we can do, especially in the short term. So shutting down foreign trade would result in a straightforward standard of living decrease. Like yes it is important to remember that finance and money are abstractions on allocating real resources, but currently those abstractions are supremely benefiting the US.

What do you mean by "affording more than we can do"? The measure of affordability is whether something is possible or not. If anything, a non-zero unemployment/under-employment means more can be afforded. By definition, in real terms, you can never afford more than you can do.

Accepting the IOUs means more exports, which is what everyone seems desperate for at the moment. In fact, Trumpism seems to be all about shutting down imports and increasing exports, which happened jolly fast and wasn't in any way related to an inability to import.

And as I said, the simple response to export demands exceeding capacity is normal - increase capacity through efficiency, import stuff to sell. A good post on exactly this stuff: https://new-wayland.com/blog/savings-are-an-export-product/

I was using the framing of your Keynes quote, with the context that Keynes was generally for increasing the monetary supply (making it possible to afford what can be done).

It is possible to afford more than you can do yourself when you buy things from other countries. That quote is arguing for ignoring the financial abstraction when it becomes limiting, and focusing on the economic realities of what can be done. But my point is that the financial abstraction is currently benefiting the US. Eschewing the financial abstraction, balancing imports and exports, and no longer being a reserve currency means that we will be able to afford less.

That may be fine if the goal is to achieve other results (eg stable manufacturing jobs that support a middle class, supply chain security). But it's still something to be acknowledged, rather than written off. Effectively the worldwide use of USD to facilitate international trade and as a store of future value is itself an export, the use of which is paid for by ongoing monetary inflation. Reducing the desire of other countries to hold USD means ending that export.

That's not what he means by afford. I think the rest of the quote makes it clear that affordability is a statement about whether the thing can be delivered in real terms.

There's no financial abstraction happening here. Exports and imports always balance, it's just that financial assets are an export product that foreigners may wish to hold. If they do, then great, because you can swap financial assets for real stuff. This is not unique to the US; plenty of countries run like this.

Of course you should acknowledge that the situation might change, but there's nothing to indicate that's happening. It's not like there's a ready supply of customers waiting to buy all the stuff the Chinese rely on selling for their domestic employment.

Edit: it's worth noting that the decisions here are largely made by the private sector. The government runs a deficit or a surplus because it has to to balance the sectoral flows [1]. If the private sector wishes to save and import, then if the government wish to not starve the economy of money, they necessarily have to run a deficit.

[1] https://en.m.wikipedia.org/wiki/Sectoral_balances

I don't really know what point you're trying to make beyond reframing the situation into different terms where different things are assumed constant, and then not actually examining what happens when those things are not constant.

I tried to meet you there with the terminology of the Keynes quote and you argued definitions rather than address the translated point.

In the general framework you're pushing, if the government does not run a deficit by being a place to park money, then that money remains in the economy regardless - private savings is generally in terms of loans to banks which then propagate the money elsewhere, not simply holding vast quantities of Federal Reserve Notes. (And frankly FRNs should really be considered part of the debt/deficit too)

I'm a bit puzzled what you're saying about private savings. You can certainly consider deposits/savings as loans to a bank, is that what you mean?

I think the point I trying to make to is that deficits should not be anything to worry about - they are just a balancing item that reflects normal monetary operations as desired by the population. As long as the country remains capable of producing useful stuff, everything is going to be fine, since that's what _actually_ matters.

> I'm a bit puzzled what you're saying about private savings. You can certainly consider deposits/savings as loans to a bank, is that what you mean?

Yes, in a previous comment you said this:

> If the private sector wishes to save and import, then if the government wish to not starve the economy of money, they necessarily have to run a deficit

My point is that the private sector saving does not itself starve the economy of money. Savings is generally done into banks, which then choose where to invest that money onwards. What makes it possible to starve the economy of money from this is precisely that the government takes loans from a private sector looking to save - either through banks that buy Treasuries, or even Treasuries bought directly - which forms [part of what is currently considered] the deficit.

> I think the point I trying to make to is that deficits should not be anything to worry about - they are just a balancing item that reflects normal monetary operations as desired by the population

My original argument had an even stronger implicit point - being able to run a deficit without the consequence of significant price inflation is an extremely beneficial situation. It implies an ever growing value of the ecosystem of that currency, sustaining the new money. We can certainly debate how that value should be realized and what it should be spent on. But pulling back from the world stands to destroy that value creation.

Ah, I see. The problem is that banks can't really invest their reserve holdings because they need them to balance the deposit. The best they can do is shuffle it around the vertical circuit, that is, they can buy government bonds. They could also take a deposit at another bank (indeed, the whole system can run on that basis without reserves), but that would be strictly on less beneficial terms than a deposit at the central bank (because the corresponding bank would need to balance the deposit made to _it_). The mainstream idea is that swapping a fixed price floating interest financial asset (reserves) for a floating price fixed interest financial asset (bonds) somehow locks it up, but that's just wishful thinking.

I'm not sure if in your final point your implying something about the quantity theory of money, which is something I reject (flows being the important measure). Perhaps you can clarify what you mean by destroying the value creation? Is this a statement about closed economies being less valuable than open ones?