mhaze,
The mechanism to allow unlimited borrowing is the combination of the government creating its own currency and the market deciding how much that currency is worth. Competitive devaluation is NOT the mechanism to allow unlimited borrowing; it's what you get if the borrowing doesn't result in increased production. Effectively it's the penalty for failure.

A government driven devaluation would not end up in the same place at all. It would be far more inflationary, and the inevitable delay in responding would disadvantage exporters.

With a market driven devaluation, speculators would make money at each other's expense, not the government's expense.

Here's the way I see it Aidan.

People like you want to be able to demand that government fund any and all of their loony notions and don't want to have to explain where the money for said loony notions will come from.

So they make up this economically illiterate idea that government can just merrily print money 'til the cows come home. Problem solved...unless of course you live in the real world.

To overcome the problem that this just-print-money idea has failed every time its tried, they say that all those failures were in countries without floating exchange rates and then pretend that matters. It doesn't. It may delay the inevitable financial collapse but that's all. Then again, it may accelerate it. Let's hope we never find out.

That few if any economists of any repute buy this rubbish is treated as immaterial to these people. They just want what they want and evidence that they can't have it is not going to be considered

mhaze,
Wrong on all counts!

What exactly are those "loony notions" that you think I support?
Do they include NDIS and Gonski? Or long term infrastructure investments?

The size of the deficit (or surplus) matters, and FWIW I'm in favour of running fairly tight fiscal policy so that interest rates and inflation can both be kept low throughout the economic cycle. But right now it's TOO tight - businesses are being held back by a lack of demand, and still the economically illiterate government want to run a surplus for its own sake, even though that's likely to result in lower production and a shortage of jobs.

I once believed that the government borrowing money from its own central bank (colloquially known as "printing money") could cause hyperinflation, but I now know for sure that it doesn't, as it's functionally equivalent to the normal bond issuance process. And although hyperinflation episodes have always involved that or the literal printing of money, there has always been another cause - either they're desperately trying to fund foreign currency payment obligations by selling their money as soon as they print it, or they've been holding their currency's value above its market value and they lose the ability to do so.

Back then I also believed that government debt was something that governments were obligated to pay off in the future. I now know that the debt doesn't matter; although individual bonds must be paid off, there's no reason why government debt can't keep rising for ever. No generation will ever be under any obligation to eliminate the government's debt. There will be times when it is paid down (and may even be eliminated) though – as I said before, the size of the deficit/surplus matters. But the size of the debt (if indeed we have one) should not affect the size of the deficit/surplus the government runs.

What will it take to convince you that this nation will aways be creditworthy, and that the government should focus on long term productivity improvements rather than short term financial goals?

There is an elephant in the room.
The world economy is lubricated with oil.
The Wall St investors have at last become aware of the Ponzi scheme
known as tight oil (shale).
They are not making a profit and only survive by selling drilling
rights to the next sucker.
It has to come unstuck sometime and it will put the US into the world
oil market in a big way. Such a big increase in buying and the
resultant prices could trip a recession off very quickly.
Perhaps the Wall St financiers are worried about that.