If a country can just print money, is global debt between countries real?
The debt is absolutely real. China loans money to US via buying the US treasury bonds. The bond is essentially a promise to pay back the money with interest, just like a loan. As you point out, the US can print money. If this were to happen, then the USD that the owner of a treasury bond receives when the bond matures are worth less that than the USD used to purchase the bonds. There are lots of reasons why the US doesn't want to print lots of money, so the purchaser of the bond is probably confident it won't happen. If for some reason they think it is possible, then they will want to cover that risk by only purchasing bonds that have a higher interest rate. The higher interest offsets the risk of the USD being worth less. Of course, there are lots more details, e.g., the bonds themselves are bought and sold before maturity, but this is the basic idea. "I think the important fact here is that all of our currencies are Fiat Currencies. So currency technically means nothing, because (as you mentioned) the country could print more any time it wants. Now what makes it useful is the combination of two big things: So I would say, we know they owe us 100 ""dollars"", and the dollar is just a word we use to represent value. It is not technically worth anything, beyond the fact that the government controls the amount of that currency in circulation and you trust that people still want more of that currency." To understand this fully one would need to understand quite a few things. Not in scope here. In short, whenever China sells goods to US, it gets USD as most of the trades are in USD. China uses this money to buy other things it needs like Oil etc. After this they still have quite a bit of USD left with them. The money is left with them because US is buying more things from China and selling less things to China. This creates a surplus USD with China. So if US were to borrow money from China or any other country, it would be this excess money. Ofcourse how money gets created in first place is a different topic altogether. This is a extremely complicated subject, but I assume you want a very simple answer (otherwise I'm not qualified to answer). The value of most currencies is closely tied to the economy of the county, so if China were to print a huge amount of yuan, then since the value of their economy has not really changed, the international currency markets would devalue the yuan to compensate. (This is rather like, if have shares in, say Apple, and they were to issue an extra billion shares, then the value of your shares would fall (by half), rather than for Apple to be suddenly be worth twice as much) Print too many notes and your currency basically becomes almost worthless, which is what happened to the Zimbabwean dollar. I like the idea of China skipping crate loads of actual yuan or dollars notes to America, but in practice, the borrowing is just a paper exercise, rather like an IOU. As to whether America owes Yuan or dollars, the answer is whatever has been agreed. Assuming the currencies are fairly stable, then since each country has more control over their own currency, it is natural for them to prefer their own currency. However, if America believes the value of the dollar will increase, they may prefer to pay back in Yuan (costing them less dollars), and if China believes the value of the dollar will decrease they may agree to that. The main driver behind countries not printing themselves out of debt is the fact that it will cripple the economy, destroy citizens savings, asset valuations and piss all the countries trade partners off so much that they may stop doing business with them.  You will have a few different extremes, look at Zimbabwe as an example of a country that just prints money like no ones business.  America is essentially devaluing its currency to compete with China. That annoys the Chinese because their holdings are devalued and as such you then see people moving away from US treasuries into more stable commodities and currencies. "Debt can be denominated either in a currency the country controls or a currency the country doesn't control. If the debt is denominated in a currency the country controls then they have the option of ""printing their way out of it"". That option doesn't come for free, it will devalue their currency on the global market and hurt savers in their country but it is an option. If the debt is denominated in a currency the country does not control then they don't have that option. As I understand it the US debt is in the first category. It's denominated in US dollars so the US government could if they so wished print their way out of it. On the other hand greece's debt is denominated in euros putting them at the mercy of european bankers."
Japan printed 11 trillion yen on Monday.  They do this by monetizing their own debt.  The increase in the supply of yen affects the value of the currency.  Strange thought, I know.  Greece has an economic crisis because they were borrowing at rates that AAA rated countries do.  Someone noticed that they weren't exactly a AAA country when they needed to ask for bailout money.  Since all government debt is considered risk free and same as cash, this came as a shock to most 'investors' hence the 'crisis'  edit: my bad, was 11 trillion, not 9 trillion You don't understand government financing at all.  Gov'ts earn revenue, aka, taxes.  They also spend money.  The different between the money they spend and they money they earn is the deficit.  If you run a deficit for a long period of time, you incur a very large national debt.  Now, you can finance (aka, pay for) a deficit by borrowing money.  This means you can sell bonds, and instead of pay off the debt each year, you just pay the interest.  If your spending balloons out of control, your the likely hood of you paying your debt decreases.  If you are very unlikely to payback your debt, people won't buy any more of your bonds, and you no longer have the income (from borrowing) to pay off your interest from other debt you owe, or what ever other obligations you own (think mortgage payments, or teachers salaries, etc).  Here's were Europe and USA differ: European nations can't just print money.  They can issue more debt, but they can't just create more euros.  IF you can print money, you can pay off your debt with money you literally created out of thin air (at the expense of your people, this is called inflation).  But this is a form of cheating, eventually people won't trust you, and won't buy your debt either.  So where do the banks come in?  if the government is SOUND and the banks are NOT, the government can backstop the banks.  This is what the US and UK did.  Greece, Spain, Ireland all had to back stop their banks also.  However, Greece, Spain, and Irelany ( and Italy, and Portugal) also have   1)  A lot of debt  2)  Structurally high deficits  3)  Extremely high borrowing costs (high interest rates...because people don't trust them...because...)  4)  Weak underlying economies  The fourth point gets you in real trouble.  if you have high entitlements, lots of poeple out of work, who the hell is paying taxes and what are they going to?  You have no revenue!  Remember, a govt works just like a household.  It is easy for a good household to support one member, but it is difficult for a member to support an irresponsible household. "**Japan Has Entered The Next Phase: Unlimited Money Printing**  Investors have been watching Japan for over a decade now, wondering what happens to a country that has a debt-to-GDP ratio of 234%--too big to realistically pay off. We are starting to get the answer. For review, Japan was the first country in the modern central banking era to begin a policy of quantitative easing--an unconventional form of monetary policy that is used when interest rates have already been lowered to the zero bound. Quantitative easing, which involves the purchase of ""printed"" money to buy government bonds, was widely viewed in Japan as a failure, but what most people don't understand about Japan's early QE experiments is that they were very small--less than $20 billion a month. It took Prime Minister Shinzo Abe, and BOJ Governor Haruhiko Kuroda to ramp up asset purchases significantly in what was called ""Abenomics.""     Shinzo Abe, Japan's prime minister. Photographer: Akio Kon/Bloomberg     The results of Abenomics have been mixed, but the stock market is certainly higher and the yen is certainly lower, although it's not clear that either of those two developments have really helped. Japan's stock market is mostly foreign-owned, and the weaker yen didn't materially help the balance of trade. Still, there are a lot of people who said that Japan's endless debt deflation would have been worse without Abenomics, so it has remained firmly in place for five years.  Abenomics rapidly began to cause distortions, as accelerated asset purchases caused the Bank of Japan to hold a huge percentage of outstanding government bonds, at 40% and rising, as well as being the majority holder of index ETFs. Investors who traffic in JGBs have remarked that the market now functions very poorly, since so much of the market is held by the BOJ. It seems that will get worse, not better. Last year the BOJ implemented a policy of yield curve targeting (ostensibly to help the banks), keeping the overnight rate negative but targeting a 10 year rate at zero percent. The BOJ has been buying longer-dated bonds for years, but this was the first time it ever explicitly capped a rate at longer maturities. Some people wondered how committed the BOJ would be to maintain that cap in the event that JGBs were caught up in a global duration selloff, which we experienced in the last two weeks.  As 10-year JGB yields rose above 0.10% last week, the BOJ announced that it was prepared to buy an unlimited amount of bonds to keep yields close to zero percent. As you can imagine, buying an unlimited amount of 10-year JGBs involves printing a theoretically unlimited amount of yen, so the yen weakened significantly on the news.  It still remains about ten percent stronger than it was in 2015. We are getting closer to the endgame for Japan. What happens if yields rise further? What happens if the yen depreciates significantly? How much could it depreciate? Could Japan have a currency crisis? What happens if the BOJ ends up owning the entire bond market? These are the questions that investors are asking, and nobody really knows the answers. We are in uncharted territory. I believe that a currency crisis isn't just possible--it's inevitable. And it probably happens at about the time that the BOJ owns all or nearly all of the JGB market, and has to resort to canceling the debt. This sounds like a neat magic trick to make the debt go away, but the laws of economics are not to be conned. Anything is possible--a currency crash, a bond market crash--anything. This is the very definition of debt monetization that resulted in hyperinflation in places like Weimar Germany and Zimbabwe. Is Japan different? We shall see. We will find out soon, as Japan has taken a major step in that direction.  Jared Dillian is the author of All the Evil of This World, and the editor of the 10th Man newsletter for Mauldin Economics. Subscribe here.  *Forbes articles have 8 tracking cookies and 9 tracking scripts. This comment has none.*(https://www.reddit.com/r/raws/comments/68xk37/about/)" If we postulate that there is at least some element of truth to the phrase 'A leopard does not change his spots'  and then consider this tidbit He conveniently forgets to mention his 1.5 million dollar fraud fine   from the SEC over investment “advice” he sold through a news letter.   The SEC claimed and the judge agreed that the report was “replete with   lies”. I think that gives you just about all you might need to know regarding the man behind the video, and the nature of it's content.  Oh, and it's purpose?  To SELL YOU the same said newsletter. I guess it's natural for Stansberry to feel as he does. After all if the US gov had just busted me for conning and lying to folks, and fined ME 1.5Mill, I'd be having some pretty intense lurid fantasies about it going down in flames, and trying to hide any money I had left offshore also.   A huge amount of his argument hinges on the US no longer being the world's reserve currency.  Firstly, while I'll admit I'm none too happy with the way the national debt has been managed for oh, around 30 years how, (which includes I will note going from a pretty much balanced budget, to around an 80% increase in the debt from 2001 through 2008, when 'times were good' and there was little need to spend money we didn't have), when compared to a lot of other countries, we still don't look that bad.  You have to ask yourself this first, if not the US, then WHO?  are the governments of the world going to trust China? could the Yen handle the load?  Is the Euro any better off especially considering problems in Greece, Ireland, etc.  Do countries like Switzerland have enough liquidity and available ways to invest there?  In order for the US to STOP being the world's reserve currency, you must have something to replace it with, and really, can we realistically think of one country/currency with the capability to become a new 'world reserve currency'???  Secondly, even then should such a shift actually happen, it doesn't mean people will ALL just magically stop buying US debt.  Yes the demand would go down, but it would not go to zero.  There are after all a worldfull of other countries who's money is right now NOT the world reserve currency, and yet they are able to sell bonds and people and even other countries invest there. (China for example does not invest exclusively in the US), so yeah we might have to start paying more interest to get people to buy US debt, but it's not like the demand will go away.   Save your money, save your time, don't buy into this dung. "First of all, just for the sake of clarity, the Federal Reserve doesn't actually ""print"" money - that's the job of the BEP. What they do is they buy US Treasury bonds - i.e., loan money to the US government. The money they do it with are created ""from thin air"" - just by adding some numbers in certain accounts, thus it is described as ""printing money"". The US government then spends the money however it wishes to. The idea is that this money is injected into the economy - since the only way the US government can use the money from these loans is to spend them on buying something or give it to some people that would spend them.  As it is a loan, sometime in the future the US government would pay these loans back, and in this moment the Fed would decide - if they want to ""contract"" the supply of money back, they just ""destroy"" the money they've got, by erasing the numbers they created before. They could also do it by selling the bonds they hold on the open market and then again ""destroy"" the money they got as proceeds, thus lowering the amount of money existing in the economy. This way the Fed can control how much money is out there and thus supposedly influence inflation and economic activity.  The Fed could also inject money in the economy by buying any assets after creating the money - for example, right now they own about a trillion dollars worth of various mortgage-based securities. But since buying specific security would probably give unfair advantage to the issuers and owners of this security, usually US treasury bonds if what they buy. The side effect of increased supply of money denominated in dollars would be, as you noted, devaluation of dollars compared to other currencies." "Bankruptcy is a way to the fiat currency system to regulate itself.  The current system assume that there will always be more debts than money available.  Since money is created with debt already attached to it, the difference between ""real"" money, and ""on paper"" money build up over time.  When this disparity become to big, bankruptcies need to occur to bring those two number closer to each other.    It's like earthquakes if you like, the tectonic plates build up tension that need to be released in many small shocks, or a few big shocks.  The everyday bankruptcies represent the small quakes, and big recession represent too much build up that need to be released in one big shocks.    It's a very high level explanation and it doesn't go into details, but it's roughly why it happens.    EDIT: I wasn't saying that it was bad or not, I was simply explaining bankruptcy and why it's bound to happen.  If you don't like the analogy, it's no reason for downvote.  I know it may not be clear for everyone, but if you do not agree, please explain yourself." "&gt; but the buying power of that money can be significantly reduced to the point where it's fundamentally useless, i.e. inter-war Germany and many countries in South and Central America.  That's true, but *how* does that come about? The effect on buying power stems from the level of spending in the present period. Too little leaves you anywhere from outright deflation and contraction to weaker growth falling short of capacity. Too much reaches capacity and keeps spending, bidding up prices and driving down purchasing power.  It has nothing to do with debt:GDP or interest payments.  &gt; Germany managed to skate by by creating a new Deutschmark in a confidence trick, and it worked because Germany is a solid, iron clad manufacturing powerhouse of a lot of stuff.   There are two important differences between inter-war Germany and the US. First is that inter-war Germany *lost a war*. This real shock is kind of important. When you're talking about buying power of money, one side of it is the amount of money in circulation but the other side of it is how much real output there is to buy and German real output capacity collapsed after the war. Their most productive regions were occupied territory and they were no longer a powerhouse manufacturing a lot of stuff, driving down the value of their currency.  So lesson number one from Germany: real output collapse harms your currency.  The second problem is that losing a war left Germany saddled with war reparations denominated in foreign currency. When you're on the hook for something you don't print you're in a situation where you can run out of money and that's exactly what happened to them. They tried printing more of their own currency to buy the foreign stuff with but that quickly drove down the value of German currency.  So lesson number two from Germany is you don't want to be on the hook for a currency you don't issue.  Put the two together and you have a real supply shock + foreign-denominated debt eviscerating the buying power of German currency. It wasn't debt:GDP but the real basis for their economy collapsing out from under them pushed along by a need for foreign currency.  &gt;My question is, at what point do we engage Washington's unlimited money printing presses until we reach that point?  In answer to your question, the printing presses are what funds the real economy. The worry in terms of avoiding ""that point"" is in making sure we keep that real economy productive and fully funded. Ironically, taking our eye off the ball to focus on budget balance at the expense of real output pushes the economy in the direction you're afraid of going. See also: the euro zone today." &gt; Story printed literally as the only thing that can hold on value to the currency..   Japan has huge current account and trade surplus. they have to print money or else Yen will shoot up to the moon.  Japan cannot afford over valued currency. "Sovereign states borrow money explicitly in a two primary ways: A sovereign cannot be compelled to repay debt, and there isn't a judicial process like bankruptcy to erase debt. When sovereigns default, they negotiate new terms with creditors and pay back some fraction of the actual debt owed.  They can also print money to repay debt, which has other nasty consequences. But, while a state cannot be compelled to repay a debt, creditors cannot be compelled to loan money to the state either! Any enterprise of sufficient size needs access to capital via loans to meet daily obligations in anticipation of revenue -- even when times are good. Defaulting makes borrowing impossible or expensive, and is avoided. Regarding using your military to avoid repaying debt... remember what Napoleon said: ""An army travels on its stomach"". Military campaigns are expensive... no borrowing ability means the soldiers don't get paid and the food, fuel and ammo don't get delivered. Smaller countries have other risks as well. Many nations are essentially forced to use US Dollars as a reserve currency, or are forced by the market to borrow money in a foreign currency. This creates a situation where any risk of non-payment results in a deep devaluation of the local currency. When your debt is denominated in dollars, these shifts can dramatically increase your debt obligations from a local currency point of view. You also run the risk that a larger or richer company will park warships in your harbor and seize assets as payment -- the US and Britain engaged in this several times during the 19th and 20th centuries. In general, not paying the bills has a cascading effect. Bad situations get worse, and they do so quickly." Yes, and heres some pretty scary stats.  Global debt went from about 200% of GPD in 2007 to 325% of GDP today.  Global Debt is about 2.5x more than the value of global broad money (all the money in the world).  The value of the derivatives market has increased to 6x the value of all global debt.  Meaning a global market of packaging and trading debt exists that is 6x the value of the debt being traded, and 15x the value of all the money in the world. Question:  So basically the money created in this globalized digital world where capital is free to roam,  it is referring to digital money and not actual physical cash.  So the goldbugs that talk about america becoming weimar republic is delusional, since there isn't enough physical cash in relations to how big the economy is.    And it is actually the debt lending that acts as a derivative of cash money that goes around posing as the money supply or the blood supply of an economy, and that feels like inflation, but when the debt is defaulted on or destroyed, underwritten or even paid back closing the circuit then it's deflationary?   But does defaulting on ones debt create inflation since that money is still in the system and not being paid off?  You know, when debts are paid off they are taken out of the system. "[There's about 10 trillion in gold](http://en.wikipedia.org/wiki/Gold_reserve) and about [2.8 trillion of US cash](http://visualeconomics.creditloan.com/the-value-of-united-states-currency-in-circulation/) in the world. Neither of these is anywhere large enough to be used for all the transactions in the world. For example, about [4 trillion a **day**](http://en.wikipedia.org/wiki/Foreign_exchange_market) changes hands in the currency markets alone - if that were required to be cash or gold it would be impossible to do so, and you'd suffer from more poorly priced goods since markets could not adjust as quickly, so vendors would charge more premium to handle the risk.  Yes, there is not (and has not been) enough cash in circulation to run the world economy. There is also vastly too little gold, unless you want to strangle commerce due to not being enough money to trade.   &gt; ""posing as the money supply""  All money is debt, and always has been. Money is a placeholder that you can trade for goods *later* meaning someone owes you a thing. The value of that money is the debt they (or society) owes you for something you already did to get that money. So there is no posing, just most don't understand money, how it originated, why it exists, or why it works. They never ask the question ""how does money come into existance"".  &gt; Does defaulting on ones debt create inflation since that money is still in the system and not being paid off?   Probably not much. Loans are made expecting some default, so the interest others pay on their loans helps offset the defaulted ones. If loans become riskier, the interest demanded increases, so the lender still (if they do their risk analysis well and no external events break their expectations) makes money.  When you pay off a debt, that money, as you're paying it, is likely being lent in other loans, so paying it off does not do much. If you could pay off about 100 trillion in debt into the US economy in one payment you might break some things :)" They're not going to do anything about it. Washington needs the debt wheel to keep spinning, or the Dollar will lose its position as the Reserve Currency. Then all hell would break loose. Powerful countries like Japan are going to have to take the initiative. And apparently they are starting to. It has to be countries like Japan because if a weak country tries this, they'll get invaded. "Correct!  But this is only true when a central bank is involved.  So if there's a single institution that has a territorial monopoly on the production of money (and competing currencies aren't allowed via ""legal tender laws""), then the debt-based money system OP describes isn't actually the system being used.  That's the problem with his post:  he's trying to make it seem like our current system of fiat currencies is somehow natural or emergent.  It's not.  What we have now is the result of a legal monopoly." "Are you working for a company that offers a Dependent Care Account? You may be able to withhold up to $5000/yr pre tax for care for you child.  If you cover more than half her expenses, she is your dependent. You can't ""double dip."" If she is your dependent, she cannot be the care provider for purposes of the DCAS, see Pub 503  top of p7 ""Payments to Relatives or Dependents."" How do you think a business would change your situation? The DCA is a small tax break, if you have no business now, this break isn't something that should drive this."