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?