Sovereign Debt Crisis

Reply to an excellent column here:
http://www.huffingtonpost.com/edward-harrison/on-the-sovereign-debt-cri_b_376642.html

a huffpo comment:

The writer seems to have little understanding of how the modern monetary system works. We have a fiat currency system with non-convertible currency. The debt is a reflection of the deficit only in the sense that deficit spending increases bank holdings and the government "borrows" those holdings, or more accurately clears excess reserves to reduce interbank competition and maintain the feds chosen interest rate. The government never "borrows" anything to pay for deficits (nor does it impose taxes to pay for deficits, another repeated fallacy). That's impossible when government owns the currency, which is non-convertible. This is why the debt grows AFTER deficit spending (i.e. the govt. isn't out there trying to drum up business before it spends). The govt. monetary system isn't analogous to you borrowing money and getting a mortgage. When "debt" or more accurately the Interest Rate Management Account becomes due, the government merely credits the account of the bond holder. It does not "print money" to service the debt. In reality, debt is not the issue when the government is managing its economy, its employment and inflation. Stimulus serves to drive down unemployment and taxation serves to stifle demand and lower inflation.

In the current situation of high levels of unemployment along with deflation, worrying about debt, which is of little concern to citizen's economic health, is criminal. I hope Mr. Harrison takes time to understand how the modern monetary system work before posting more pieces that misplace reader's concerns about the economy.

I found the column to be very accurate and your complaints based on inaccuracies.

"The government never "borrows" anything to pay for deficits "

The government does indeed borrow from future income to cover the current shortfall between taxes and expenses. That's what the auctioned Treasuries represent- constant borrowing to pay for budget gaps. Budget gaps are deficits

"government owns the currency, which is non-convertible"

The US government does not own the currency- the government grants the license to the private Federal Reserve that allows the Fed to call the federal reserve notes ( a debt instrument ) 'legal tender'.

"worrying about debt, which is of little concern to citizen's economic health, is criminal."

Sorry, but debt is debt, and it's just as dangerous for the government to ignore an accumulating debt as it is for an individual to do so. Just because adding debt does not produce corresponding, highly visible, and immediate changes in the appearance of the economy does not mean that it is not generating forces that are accelerating as the debt compounds.