azizonomics.com / By John Aziz / January 2, 2013
I’ve taken some criticism — particularly from advocates of modern monetary theory and sectoral balances and all that — for using total debt rather than just private debt in my work.
The modern monetary theory line (in one sentence, and also in video form) is that government debt levels are nothing to worry about, because governments are the issuer of the currency, and can always print more.
This evokes the words of Alan Greenspan:
The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.
Of course, the point I am trying to make in worrying about total debt levels is not the danger of mass default (although certainly default cascades a la Lehman are a concern in any interconnective financial system), but that large debt loads can lead to painful spells of deleveraging and economic depression as has occurred in Japan for most of the last twenty years (where twenty years of crunching debt deflation has preceded Japan electing a leader who seems hell-bent on trying to start a war with China, but that is another story for another day):
