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Heterodox central bankers

"Our national debt we will owe to ourselves. The cost of interest service and gradual repayment that is collected in taxes from one generation will be paid to the same generation. The debt will be held wholly within the United States and by our citizens. It will present none of the impossible problems that accompany an external debt. If we fail in the future to make democracy worth while, it will not be the size of the public debt that defeats us. It will be because we have not learned how to use these great resources - human and material - to provide full employment and a high standard of living for all our people."

Chester C. Davis
President, Federal Reserve Bank of St. Louis
November 14, 1942


  1. "The debt will be held wholly within the United States and by our citizens."

    He was plain wrong. That's the problem with public debt, nowadays a big part of it is held by foreigners. So the burden is shift to future generations.

    Am i wrong?

  2. Nope. The important part is that is in dollars (not in foreign currency). No matter what generation you can always monetize. For the effects of monetization read this

  3. i m arguing that if public debt (national or foreign currency doesn't matter) is held by foreigners then his burden is shifted to future generations
    am i wrong?

  4. Hi JanVI. Those are two different issues. Foreign debt in foreign currency must be paid with proceeds of exports. Not the case with domestic debt. Whether another generation is burdened or not, depends on whether the economy grows faster than the debt, and the debt burden over time diminishes. As it turns, he was correct on everything he said. The debt burden that reached around 120% of GDP at the end of the war, was a mere 30% or so by the 1980s.

  5. "Foreign debt in foreign currency must be paid with proceeds of exports."
    why? can't we just print our currency, buy the foreign currency and pay the foreign debt?

    1. That's the point the US doesn't have foreign debt. Even when it is held by foreigners the US debt is always denominated in dollars. That's the meaning of having the hegemonic currency. So all the debt is denominated in dollars and as he said that "will present none of the impossible problems that accompany an external debt."

  6. sorry but i just can't understand what difference does it make...
    if debt held by foreigners is denominated in usd, we can print dollars and pay our debt
    if debt held by foreigner is not denominated in usd, we can print dollars, buy other currencies and pay our debt
    which are "the impossible problems that accompany an external debt"?

    1. For the US none. Because there is no foreign debt. Foreign debt is in a foreign currency. Greece is in debt in euros and cannot print it. Argentina had (still has) debt in dollars and was forced to default in 2002. If you don't export you don't have the means to pay. The US does not have foreign debt, all is in national currency and hence no default is possible. Yes the US cannot default since it can always print money. which means that the impossible problems (default) that accompany an external debt will not (and did not) be present.

    2. let's make an example
      argentina has some debt denominated in usd
      why is it a problem? argentina can print pesos, buy dollars and pay the debt
      where are the "impossible problems" ?

    3. JanVi,

      Here is another post by Matias. It should be helpful for understanding why external debt is problematic.

    4. THanks CMD. JanVi here is why it would be a big problem (and was by the way in 2002). So the government prints pesos, but still there are no dollars (from exporters) around, and nobody willing to sell them dollars at the current exchange rate. So you have massive devaluation and still not enough dollars. Unless you default, still not enough dollars to service debt. And the depreciation (not the printing of dollars) is inflationary. The lack of dollars means you cannot import goods that are necessary to produce, and output collapses, with unemployment reaching 25%. Inflation, recession, and default. All of those in 2002 in Argentina.

    5. Printing of pesos not dollars (that was wishful thinking).


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