On one of the blogs I follow, there has been an ongoing debate between the Austrians and the MMT'ers over the notion of whether the U.S. (as a monopoly issuer of its currency, who holds no debts in a foreign denomination) can default. On the face of it, it seems like a silly exercise. I think it is safe to say that the Fed can print up as many dollars as it wants to repay the country's debts. But, from my seat, that isn't the real concern. It is whether in the exercise of that power they end up debasing the currency and destroying its purchasing power.
To give a little context to the proceedings, as NGDP targeting starts to go mainstream, the MMT'ers are saying that inflation is our friend and can get the economy going again. The counter-argument is that the same distortions and intertemporal effects that caused the most recent dust-ups in the economy are again at play, and the ending will look pretty similar to what we saw already. At the crux of it is whether interest rates will shoot up at some point when the papering-over no longer causes the same high that it has in the past. And to that point, the MMT folks don't think rates will rise because the Fed can manage them to whatever extent they please.
But, it feels like this back and forth is really over semantics. No, the U.S. won't literally default, even if rates go higher. But, the citizenry that saves in U.S. dollars might have some major issues in the future using them to actually buy anything.
