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Sure, for past loans this is true. But for governments that run perpetual deficits, they have to go out to the market to service ongoing obligations. As some
by anonuser123456 5y ago
Sure, for past loans this is true. But for governments that run perpetual deficits, they have to go out to the market to service ongoing obligations. As some point the market catches on and interest rates snap upward, leading to increased real costs of financing debt.
- gizmo686 5y agoInterest rates are a policy decision by the federal reserve. Maintain a debt instead of printing money is a policy decision by Congress. In practice the government going into debt denominated in its own currency, and printing more of its own currency are essentially the same thing. Mechanically, when the interest rates go higher the Fed policy, the fed just buys the debt itself, driving up the market price (therby down interest rate). In effect, this converts US debt into cash. Similarly, they can sell treasury debt, driving up the interest rate. It is just a quirk of bookkeeping that the we keep track of how much money the treasury owes the federal reserve.