And Why Should They?

The world is awash with deluded people who think that authorities debt is related to your debt of a household or company: something that is bad, bad, bad. And allegedly that government personal debt must be reduced or paid off as soon as possible. The reason for that delusion is that the term “debt” has negative overtones, and the overtones of a word are that a lot of people consider: that is, taking into consideration the ACTUAL NATURE of government debt is too much like hard work. To become more exact, government debt can be an asset as viewed by those who hold that debt (i.e. private sector entities like households).

I.e. government debt is a kind of saving. Thus we might as well scrub the expression “national debt” and rename it “national savings”. If we did that, the above-mentioned people would immediately conclude that the more “national savings” there will be the better. Where does the truth lay on that “savings – debt” scale? It’s thus good to see Narayana Kocherlakota distribute a Bloomberg article recently advocating more federal government personal debt – in flat contradiction of the traditional view that the debt should be reduced. However, not even Kocherlakota’s analysis is without defects, so I’ll run thru it.

In his 3rd para (starting “How is the US government..”) Kocherlakota argues that because interest on US national debt is lower than it was ten years ago, that therefore that rate of interest must be too low. To place it politely, that’s not a brilliant piece of logic: if the speed of your car is less than it was two minutes ago, does that prove the speed is currently too low?

Put another way, the fact that something is less now than it was recently is completely irrelevant. The IMPORTANT point is this: what’s the OPTIMUM amount of any variable (debt, car speed, etc)? However as I’ve over pointed out over and, the idea “optimum”, simple as it is, is way beyond the understanding of about 99% of the populace. Well, regarding MMT, that I agree with, the optimum amount of national personal debt is simple enough to determine too, at least in theory.

It goes such as this. Debt as seen by debts holders is an ASSET. Actually national debt is merely a kind of term accounts: it’s a chunk of money which the government will pay interest (as unique from physical cash, on which the government will pay NO INTEREST). And the larger the stock of those paper resources (debts and base money) kept by the private sector, the more the private sector will spend, all else similar.

Thus the OPTIMUM amount of that stock is merely the total amount that inducing the private sector to spend at a rate that brings full employment. Another related question (mentioned above) is this: what exactly is the OPTIMUM interest to pay on the debt? Apologies for using that word “optimum” again! Well, no real reason to pay any interest in any way, there’s!

Milton Friedman advocated the abolition of federal government debts: i.e., he advocated that the only liability of the condition should be bottom money. To be more exact, there’s no reason behind government AS CURRENCY ISSUER to pay any interest. In contrast, there might be a reason for government AS OPERATOR OF INFRASTRUCTURE investments to pay interest, but even the arguments there aren’t good, as I’ve elsewhere explained. Having said that, I wouldn’t rule out the use of interest adjustments altogether: obviously they’re a useful tool to use in emergencies.

But basically, and to repeat, there aren’t any BRILLIANT arguments for repaying interest on government liabilities 12 months in 12 months out. In all these 3rd paragraph Later, Kocherlakota says (in reference to the fact that interest on government debt reaches record lows) “This means that the price is near record highs, suggesting that the U.S.

  1. Family conferences
  2. The potential for more turmoil emanating from Europe’s debts problems
  3. Preparing to open your business
  4. Need not be an entity independent of the sponsors
  5. For more on BEA’s figures, see our monthly online journal, the Survey of Current Business
  6. 1Clinton Health Access Initiative, Boston, MA 02127, USA
  7. Add-on acquisitions: $3+ million in income

Well demand for anything (revelation of the century this) depends on the purchase price. All Kocherlakota is saying is that if interest on the debt was higher, there’d become more demand for it. That ignores the more important and more basic question handled above, specifically: what’s the OPTIMUM level of interest on your debt?

Like I said, the idea “optimum” is beyond the comprehension of 99% of the population. No, we’re not: households and other entities are free to stock up on whatever amount folks dollars they want. At least they’d have that independence in an MMT program certainly. However, they WOULDN’T necessarily get any or much interest on that stock.