4 ms·

As I understand, these debts will never be repaid, they will be inflated away so that they remain inconsequential (for some definition of that word) relative to

As I understand, these debts will never be repaid, they will be inflated away so that they remain inconsequential (for some definition of that word) relative to the size of the economy. This is true e.g. for corporate bonds as well, they are a structural part of financing operations rather than a loan to do a specific thing that then gets paid back.

syncsynchalt 5y ago
That's my understanding too. Another way that I've heard it: you don't need to reduce your national debt, rather you need to ensure that your tax base is growing more quickly than your debt.
lottin 5y ago
This might work for long maturity bonds, but debt in the form shorter maturity bonds (0.5 to 5 years) can't really be "inflated away" without destroying the economy in the process.
- ac29 5y ago
  Right now 5 year US government debt pays less than 1%, with shorter maturities paying less than that. Inflation is always a touchy subject, but I think we can agree that 1%/yr or greater inflation is hardly unimaginable over the next 5 years. https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield https://www.treasury.gov/resource-center/data-chart-center/i...
  - lottin 5y ago
    Sure, but for this scheme to work, the increase in inflation has to be unexpected. If the expected real return is too negative, nobody will buy the bonds in the first place.
verdagon 5y ago
The treasuries I've seen are adjusted for inflation, so this won't happen to those. Not sure if there are also un-adjusted treasuries though. Probably?
- loeg 5y ago
  Most treasuries are fixed-rate, not inflation-protected (TIPS).
jldugger 5y ago
I mean, Al Gore broke the tie in the senate to balance the budget in 1993, after which the Fed and Treasury had to seriously consider how to implement their policies without being able to buy / sell federal debt, because a lot of US debt is short term and as that debt matures without rolling over the debt payoff snowballs fast (for a government anyways).
im3w1l 5y ago
For corporate bonds, they are meant to be rolled until bankruptcy right? At that point they are repaid, fully or partially depending on how things go.

syncsynchalt 5y ago

That's my understanding too. Another way that I've heard it: you don't need to reduce your national debt, rather you need to ensure that your tax base is growing more quickly than your debt.

lottin 5y ago

This might work for long maturity bonds, but debt in the form shorter maturity bonds (0.5 to 5 years) can't really be "inflated away" without destroying the economy in the process.

ac29 5y ago
Right now 5 year US government debt pays less than 1%, with shorter maturities paying less than that. Inflation is always a touchy subject, but I think we can agree that 1%/yr or greater inflation is hardly unimaginable over the next 5 years. https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield https://www.treasury.gov/resource-center/data-chart-center/i...
- lottin 5y ago
  Sure, but for this scheme to work, the increase in inflation has to be unexpected. If the expected real return is too negative, nobody will buy the bonds in the first place.

verdagon 5y ago

The treasuries I've seen are adjusted for inflation, so this won't happen to those. Not sure if there are also un-adjusted treasuries though. Probably?

loeg 5y ago
Most treasuries are fixed-rate, not inflation-protected (TIPS).

jldugger 5y ago

I mean, Al Gore broke the tie in the senate to balance the budget in 1993, after which the Fed and Treasury had to seriously consider how to implement their policies without being able to buy / sell federal debt, because a lot of US debt is short term and as that debt matures without rolling over the debt payoff snowballs fast (for a government anyways).

im3w1l 5y ago

For corporate bonds, they are meant to be rolled until bankruptcy right? At that point they are repaid, fully or partially depending on how things go.