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The phrase that Bill Mitchell uses is, "so long as people accept the US dollar, ...", without delving into how long that might be and under what terms.

Which is true as far as it goes, and that is what you want from a theory on an aspect of the economy. After all, the problem with the underlying theory that Krugman uses is that its a closed model independent of money, and so the premise that money is neutral over the long term is built into the underlying logic of the model, entirely immune to falsification by empirical evidence. Grand Theory of Everything economic models have to date ended up being Grand Theory of Nothing In Particular models, running on false equivalences between the terms of the model and the actual phenomena observed in the real world.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Aug 16th, 2011 at 11:21:06 AM EST
[ Parent ]
I don't quarrel with his modeling approach. I just think that when he is formulating policy proposals, he should pay a little more attention to possible scenarios for other people beginning to not accept dollars than I usually see in them.

Of course, I realise that he's busy debunking sky-is-gonna-fall scaremongering about the dollar collapsing due to the sovereign deficit - which is entirely the wrong sort of deficit to cause a dollar collapse. So perhaps it is simply that he does not want to open himself to "gotcha" games by quote miners.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Aug 16th, 2011 at 11:46:16 AM EST
[ Parent ]
... accepting the US dollar. The terms of trade dropping, sure, but a floating exchange rate most commonly melts down when there is substantial debt denominated in foreign currency, and since the US is not in that position, a slide in the exchange rate without a meltdown would ensure that people keep accepting the US$.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Tue Aug 16th, 2011 at 01:12:52 PM EST
[ Parent ]
A sufficiently substantial (and, more to the point, sufficiently rapid) deterioration of the terms of trade would be quite painful enough that you would want to avoid it.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Aug 16th, 2011 at 01:57:13 PM EST
[ Parent ]
How much disruption is caused if the US dollar drops in value, say, by 50% on a trade weighted basis ... and how much disruption is caused if the US$ is not accepted as payment ... are two categorically different questions.

In the latter case, you are talking about 2/3 of US petroleum supply no longer arriving, except on barter terms or by diverting funds from exports that have earned hard currency.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Aug 16th, 2011 at 06:50:26 PM EST
[ Parent ]
Whereas in the former, petroleum prices only go up by something on the order of 100 %.

Which couldn't possibly cause riots.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Aug 17th, 2011 at 04:03:55 AM EST
[ Parent ]
Precisely. We've had gas prices double several time in the past forty years, and it never caused widespread rioting. Recessions, sure, but not riots.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Wed Aug 17th, 2011 at 07:00:22 AM EST
[ Parent ]

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