We have already established that the government can never become insolvent because it is a currency issuer and can always pay back its debts. Explaining how this works with China is complicated, to say the least. It is built upon the US Treasury system, a tool by the FED to set interest rates. For the average person, understanding exactly how this works is probably not necessary. Instead, this quote from Kelton provides a simplified explanation:
“Borrowing from China” involves nothing more than an accounting
adjustment, whereby the Federal Reserve subtracts numbers from
China’s reserve account (checking) and adds numbers to its securities account (savings). It’s still just sitting on its US dollars, but now China is holding yellow dollars instead of green dollars. To pay back China, the Fed simply reverses the accounting entries, marking down the number in its securities account and marking up the number in its reserve account. It’s all accomplished using nothing more than a keyboard at the New York Federal Reserve Bank.
In other words, paying back China is not something that should fall on the backs of your average American but instead it could be carried out by interactions at the FED. However, it should be noted that China asking for its debt to be paid back immediately is also against their interests. If you want to know exactly how and why, I recommend further reading. Finally, we must consider trade. Even among economists who do not believe in MMT, protectionism and free trade are still divisive issues. Some claim that free trade is great, and when businesses decide to do foreign outsourcing, they are not only beneftting the domestic consumer but also foreign countries by placing businesses there. Others claim that this is exploitation by using cheaper labor to create our goods and supplies, though free trade advocates will rebut that it helps those countries develop. Regardless of these differences, most people tend to agree that there is some balance of trade with regulation which is good
– just to varying degrees.
The MMT community’s approach lands somewhere in the middle. They claim that free trade is beneficial to the United States and, in some ways, beneficial to the host countries. Without getting into the complicated history of colonialism and coups, just know that while there are downsides to more open trade, the MMT group argues that being a total protectionist and equaling our trade balances are also not good for these developing nations (Kelton). To “develop”, they need to stop relying on foreign imports for necessities, which is something we cannot really affect by looking only at protectionism and free trade. Once again, MMT claims that the Federal Jobs Guarantee will allow us to outsource certain businesses abroad without ruining people’s livelihoods so long as we simultaneously ensure Americans still have a public option for work. That way, foreign countries can have more money and jobs available, while Americans can benefit from cheaper commodities and have guaranteed employment.
There are certainly critiques to bring up of this model: it does not address whether people working in a manufacturing plant for decades would suddenly like to switch jobs, and it does not offer a model to help these developing nations actually catch up to the developed world. Also, if a business decides to invest in a foreign country but then suddenly pull out when things look bad (as has historically happened), then their country may be left in financial ruin (Kelton). MMT offers a possible, temporary alleviation from downsides to trade, but if we really want to help developing countries, there are other ways to do so outside of trade.
Trade is generally a very complicated cost-benefit analysis system that you could probably spend a lifetime trying to understand all the nuances of. Kelton argues that current trade contracts often neglect the needs of the working class, and that even with the Federal Jobs Guarantee, our contracts and trade agreements still need to be fairer. From here, I will leave it to you, the reader, to decide where you stand on trade.