The government doesn't need to sell bonds, but does for practical reasons. It provides a safe asset for wealthy people and organizations. If you haven't realized, but banks only insure accounts up to $250k. There needs to be a safe mechanism to store more and treasuries serve that purpose. Also bonds help drain bank reserves! Selling bonds actually slows down bank lending and reduces risk taking in the banking sector. Also too many reserves make monetary policy from fed ineffective.
The national debt is simply all the money the government created minus the money it destroyed from taxes. Another way of thinking about it is it's national savings.
The boom and bust cycles happen because of private sector debt cycles not government debt.
So is it your assertion that if the government decided to stop selling bonds (because let's say it no longer cared about those "practical reasons") and just paid off all the debt by printing money, that doing so would NOT cause high levels of inflation? Or that it would, but that high inflation is not a problem? Or that the status quo of ~20% of tax revenues going to interest payments is not a problem?
I guess I don't see the great societal benefit of the super wealthy a safe asset to park their wealth in, but I do see the societal harms of government borrowing (mentioned above).
Bonds are just money that pays interest. If you exchange interest bearing money with money that doesn't return interest, you tell me what you think will happen.
It’s extremely well known what happens in this scenario: When governments start printing money like nothing matters and there are no consequence, the currency collapse into a hyper inflationary death spiral.
You act like that interest payment is just a technicality or something. It’s not. It’s a market rate that reflects the world’s belief in the soundness of the currency and government.
Throw that away and it all comes crashing down.
The US doesn’t exist in global isolation. We still buy things internationally as inputs to our factories and to make everything work. If we start a hyper inflationary currency death spiral where the government prints money out of thin air as a solution to spending problems, the value of our dollars becomes progressively less, hence the inflation. Then we all, including the government, have to spend more of those dollars, so the printing increases, and it becomes a self-reinforcing cycle.
This entire line of thinking that it doesn’t matter is basically quackery. It has been tried. It does not work.
Interest rates will fall but beyond that it's very non-obvious what will happen. Money becomes a hot potato? Cashflow-generating assets get bid up to extreme valuations? Speculative assets like crypto gets carried along for the ride? An increase in private borrowing, the money supply, the velocity of money, and inflation?
On the other hand, the government debt interest burden goes down, which means a slowdown in the growth of the base money supply (even while borrowed money increases). Perhaps this slows long-term inflation, but that in turn might mean inflation driven by growing private debt and speculative malinvestment swings well past equilibrium and turns into a bubble that pops into eventual deflation.
How would swapping interest bearing money for non interest bearing money cause inflation? If anything it would force people to chase yields and you will get a boom in prices for other assets. But that money isn't going to be used to buy t-shirts, electronics, and cars because it's mostly owned by rich people and organizations.
Those rich people and organizations invest in stuff like businesses and real estate. The businesses spend money on things (including labor) driving up costs. Rent and land costs get more expensive too
Usually increasing money supply creates demand for new businesses. Under normal economic times this isn't inflationary because supply increases with growth in money. It's inflationary only if there are resource constraints (think covid).
I guess I would agree if there were no resource constraints, money supply increase wouldn't be inflationary, except I think there are resource constraints.
US is basically at full employment. Labor is a very constrained resource and quite inelastic (for example, it takes ~30 years to grow and train a new doctor). Housing supply in the US is increasing, but the timelines here are glacial. I don't see how increasing the money supply won't increases wages and land values. And labor and land pretty much feed into the costs of everything else.
Sure, a few things which are mostly imported or automated (t-shirts, some commodities, etc...) might be relatively stable in price, but the bulk of household budgets isn't t-shirts. It's stuff like housing and services (healthcare, education, etc...); if wages and land prices go up, housing and services get more expensive.
> The national debt is simply all the money the government created minus the money it destroyed from taxes. Another way of thinking about it is it's national savings.
The national debt is all the money spent minus money collected via taxes
If a government starts printing money like nothing matters, we already know what happens: Hyperinflationary death spiral. The government gets money to spend, but it crushes the value of the currency in the process. In crushing the value of the currency, they then need to print more money for the next round of spending, which further devalues the currency, which accelerates the cycle.
It's not "just 250k." There are different classifications that the insurance covers. For example, a trust account (considered any account with a beneficiary listed) should cover 250k + 250k per beneficiary, with a cap (might not be implemented yet) of 1.25m.
In addition to that, most FIs purchase some form of excess share insurance to cover deposits beyond the 250k.
You would need a very large amount of deposits at a single institution to run up against the insured limits. If you are ever concerned about that, you can reach out to your financial institution(s) and ask them if you have any uninsured deposits.
The national debt is simply all the money the government created minus the money it destroyed from taxes. Another way of thinking about it is it's national savings.
The boom and bust cycles happen because of private sector debt cycles not government debt.