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Tremors Was A Very Bad Movie

Cullen Roche profile picture
Cullen Roche

Do you remember the movie Tremors with Kevin Bacon about underground monsters? It was terrible. But they ended making like 5 or 6 of them. It was like a bad nightmare that wouldn't end. Which is similar in many ways to a recurring theme on this website where I explain how the USA isn't bankrupt.

I was reminded of this while reading this post titled "Tremors" by Stanford economist John Cochrane in which he explains how rising interest rates pose a threat to the US government's ability to finance its debt.

Now, I think Cochrane is overlooking some important macro factors here and I'll just briefly cover them as a refresher before jumping into the more specific details:

  1. The US government sits in a uniquely special position in the global monetary system since it's the entity that can tax the most productive private sector in the world. Its credibility as a safe haven financial asset issuer is unmatched because its private sector output is unmatched. Many people get this precisely backwards and think that the US Dollar is a strong reserve currency because of some global currency arrangement or government conspiracy when the reality is that the US government is the dominant reserve currency issuer because its private sector produces huge quantities of high quality goods and services denominated in USD.
  2. Part of Cochrane's post talks about the risk of the USA experiencing a European style financing problem. This is a false comparison since the European Central Bank is essentially a foreign Central Bank. The Federal Reserve will always standby to "finance" the debt issuance of the US government so we need not worry about being able to sell government debt. In other words, the USA cannot run out of money since it can print debt.
  3. Of course, the US government

This article was written by

Cullen Roche profile picture
Mr. Roche is the founder of Discipline Funds, a provider of multi-asset low cost ETFs and financial advisory services. To learn more about Discipline Funds please see:https://disciplinefunds.com/

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