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> No, because most government borrowing is not borrowing from the central bank. To be precise, it almost always against the constitution. The problem is, the a
by eddd 9y ago
> No, because most government borrowing is not borrowing from the central bank.
To be precise, it almost always against the constitution. The problem is, the amount of money the government can borrow is tied to the money supply. If FED raised rates a couple percent, US would bankrupt in a few days after.
> Empirically, that has worked out rather well .
That's arguable, since we don't know what would happen if we didn't intervene with artificial interest rates.
- torstenvl 9y agoI'm reading your comment to mean that you think federal debt is unconstitutional. Is that your position? If so, do you have any support for that position?
- eddd 9y agohttps://www.investopedia.com/articles/bonds/09/bond-market-interest-rates.asp https://www.investopedia.com/articles/bonds/09/bond-market-i... Sorry to leave you with a link, bed time ;)
- daxorid 9y ago> If FED raised rates a couple percent, US would bankrupt in a few days after. Setting aside the fact that the fed funds rate can only wag the short end of the yield curve, I'd like to point something out. If the coupon on ALL issued Treasury debt suddenly went to 10% overnight, then yes, we would be looking at possible solvency issues. But that's not how it works. The coupon the US pays to creditors is fixed until the maturity date of the bond. The average maturity on issued bonds and bills is 69 months. Meaning that open market yields would need to remain at (2*(10-current average yield))% for nearly six years in order to get to that point.
- eddd 9y agoThat's true. But Treasury issues bonds quite often, partially to cover interest on existing bonds. So, the day rates raise to high, treasury is insolvent.