On Tue, Sep 15, 2009 at 4:16 PM, Jim Devine <[email protected]> wrote: > Since the federal government (like other institutions presumed to be > infinitely-lived, such as corporations) typically rolls over old debt, > turning it into new debt, it is the interest payments that count and > that can be a burden. Then, they are only a burden on those who don't > own government bonds. For those who own bonds, it's a benefit.
This deserves closer attention. Presumed infinitely-lived entities may be able to roll debt over forever in principle. In practice however, there are two problems. One is a liquidity crisis that will force monetization of debt obligations one way or another (in the case of government by printing currency). It is true that the US government because of the reserve currency status of the US dollar has never had to face a liquidity crisis. But a libertarian might argue that increasing debt loads make this inevitable precisely by jeopardizing the reserve status of the dollar in the long term. I find this argument also to be logically unimpeachable (though perhaps beside the point - why is the reserve status of the US dollar so desirable anyway except from the selfish perspective of the US elite class?). The second, more subtle problem with the long-lived entities debt is that over time, it starts to assume the properties of "real" money. Treasury bills today arguably act as "near money" because they can be readily borrowed against without haircuts. If you issue a huge amount of new T-bills, you may not see an increase in money supply, but may see an explosion in velocity. But will it have similar inflationary effects? The answer is not obvious to me, but it seems quite plausible. -raghu. -- "I have a heart of a child... in a jar on my desk." - Stephen King _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
