My naive guess would be that to do that, the Treasury would have to suddenly sell enough bonds to cover the entire US national debt, a gargantuan sum which bond investors would be unwilling and unable to provide.
Treasury bonds are generally not callable, meaning we agreed at the outset that we would pay the interest rate for the duration. However, the vast majority of U.S. debt is currently at historically low interest rates.
There is no reason the debt ever needs to be paid off, or even reduced.
There is no reason the debt ever needs to be paid off, or even reduced.
I agree that the debt is never going to crash the economy, but don't people always fret about how interest on the debt occupies 1/3 of the federal budget or somesuch?
Looking it up, it looks like it's around 6% currently, so maybe that reflects "the vast majority of U.S. debt is currently at historically low interest rates."
But I really feel like I heard the "1/3 of the budget is going to interest on the debt!" line for the past twenty years. (Not necessarily as part of the current bullshit.)
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Treasury bonds are generally not callable, ...
This is correct. Unlike home mortgages where you generally have the right to refinance. This is one of several reasons home mortgages would be unlikely to exist in their present form if they were not heavily subsidized by the government.
However there is currently a lot of new debt being issued (to fund the current deficit and outstanding debt coming due). Most of this new debt is being sold in relatively short term instruments. It is possible (perhaps likely) that the US would be better off in the long run if more of this debt were being funded with long term bonds. But because long term interest rates although historically low are still higher than short term rates the immediate effect would be to increase the government's interest expenses. This makes it unattractive to short term oriented politicians.
I seem to remember the Bush administration "calling" some debt. If you remember interest rates were in high double figures in the early eighties, and I think Bush somehow called or redeemed or exchanged a bunch of thirty-year treasuries at the twenty year mark, 2002-2004 when rates were real low.
I was amazed at the time that they got away with it. I am not sure how to google it.
PS:As a post-Keynesian or paleo-Keynesian or neo-Kaleckian, I of course disagree with your entire first paragraph.
There may be some point where too much federal debt would become inflationary. Without going into whether is a good or a bad thing ( hint: good if you are in debt, that is. Not rich. Bad if you are a bank), we are nowhere near that point now.
6:Over at CT there are having a discussion about bringing back the "politics" to "Political economy."
Debt gives creditors political power in multiple ways. Kalecki explained this in 1943 or so, but Kalecki was a political economist, or socialist.
It's fun to think that the Austerians are crazy, evil, or doing bad economics, but the fact remains that deficit phobia is driving much of the politics in the US and Europe.
And we don't have to borrow. The gov't can just spend, paying cash, or electronically crediting accounts for goods, services, and payrolls without going through the mediations of a central bank and treasury bills.
3.2: Looking it up, it looks like it's around 6% currently, so maybe that reflects "the vast majority of U.S. debt is currently at historically low interest rates."
Graph showing interst as a % of federal outlays since 1941. Interest rates have certainly helped recently (2009 was the lowest since 1945) . Peaked at about 15% briefly after WWII and in mid '90s (there was a plateau through the '80s and '90s).
3.3: But I really feel like I heard the "1/3 of the budget is going to interest on the debt!" line for the past twenty years. (Not necessarily as part of the current bullshit.)
Yes, you have heard various distortions and exaggerations since forever; the current bullshit is basically the same old bullshit* you heard whenever anyone wants to spend Gov't money on things that aren't the military, farm subsidies or local boondoggles**.
*Also because in a civilized society our elites would be hunted down and killed and eaten at great ceremonial feasts.
**We really need earmarks back. Part*** of the current dysfunction in Congress is a political boondoggle liquidity trap.
***A small part, but a critical one.
5
Some US bonds issued before 1985 were callable. See here .
The final bond call occurred in 2009. No more bonds are eligible to be called.
USG could buy it back, if it was willing to pay the premium. Net wash.
Here is one of the 'elite" in 2001 expressing fear of a lack of a deficit when expressing support for the Bush tax cuts.
But improvements in the most basic measure of economic potential -- productivity, or output per hour -- have substantially brightened the economy's long-term prospects, even at a time when the economy is enduring a short-term downturn, he said.
As a result, he said, there is a greater likelihood that the government will run surpluses for years to come -- and that the government will soon confront the welcome but tricky question of what to do with surplus revenue when the debt is zero.
Lacking anything else to do with the money, Mr. Greenspan said, the government might eventually end up buying stocks and corporate bonds on Wall Street, involving Washington heavily in private enterprise.
His core asshattery manifests itself quite differently today. ... Shockingly.
"Even if we have to pay the cost of a significant rise in taxes to get a significant slowing, and then decline, in social benefits that is a very cheap price," Greenspan said in an interview on Bloomberg Television's "In the Loop" with Betty Liu."Even if we have to pay the cost of a significant rise in taxes to get a significant slowing, and then decline, in social benefits that is a very cheap price," Greenspan said in an interview on Bloomberg Television's "In the Loop" with Betty Liu....
Greenspan said it would be a mistake to think that the U.S. is going to fix its "unstoppable" spending "without pain."He'd be kinda old and stringy to eat, however.
Debt fueled runaway inflation is not one of the many catastrophes I worry about, but I have some questions. People point out that a country that owes in a currency under its control can never be forced to default, as it can always monetize the debt (Is this the right phrase? My brain is a little fuzzy this morning.). To what extent are the two processes interchangeable? That is, can inflating away a debt be viewed as a soft, slow default, with similar economic effects? And could a nation borrow enough that the two become almost indistinguishable?
Also, if inflation is the rate at which previous contracts and obligations get wiped out (which is why it benefits debtors and hurts creditors, as 6 points out), at the macro level I can see how this could speed an economies return to some equilibrium. If there are a class of people who are expected to do worse under that equilibrium (say, people with little power to command raises or even hold on to their jobs (the lower and perhaps middle class in the US)) couldn't they be hurt by inflation?
13.2: The traditional class of people who were really hurt by inflation was people living on fixed incomes. It's somewhat less of a factor today now that Social Security and many private pensions are indexed to inflation (for those who still have traditional fixed-benefit pensions), but it could definitely be a factor for the elderly trying to live off of their IRAs and other investments (which would put them in the creditor class).
heebie, just to make it clear: Let's say that you have a bond that pays 3% interest, and the current interest rate is 0%. Why would you sell it back to the government? You have a risk-free investment that is paying better than the market rate of return. You would only sell it back if the government paid more than the original price, which would means the government wouldn't save any money.
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... and many private pensions are indexed to inflation ...
I believe private pensions (and annuities) generally are not inflation indexed.