by From Lars Syll Can a government go bankrupt? No. You cannot be indebted to yourself. Can a central bank go bankrupt? No. A central bank can in principle always ‘print’ more money. Do taxpayers have to repay government debts? No, at least not as long the debt is incurred in a country’s own currency. Do increased public debts burden future generations? No, not necessarily. It depends on what the debt is used for. Does maintaining full employment mean the government has to increase its debt? No. First, full employment can be maintained by printing the money needed for it, and this does not increase the debt at all. It is probably advisable, however, to allow debt and money to increase together in a certain balance, as long as one or the other has to increase. Second, since one of the
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from Lars Syll
Can a government go bankrupt?
No. You cannot be indebted to yourself.
Can a central bank go bankrupt?
No. A central bank can in principle always ‘print’ more money.
Do taxpayers have to repay government debts?
No, at least not as long the debt is incurred in a country’s own currency.
Do increased public debts burden future generations?
No, not necessarily. It depends on what the debt is used for.
Does maintaining full employment mean the government has to increase its debt?
No.
First, f
ull employment can be maintained by printing the money needed for it, and this does not increase the debt at all. It is probably advisable, however, to allow debt and money to increase together in a certain balance, as long as one or the other has to increase.
Second, since one of the greatest deterrents to private investment is the fear that the depression will come before the investment has paid for itself, the guarantee of permanent full employment will make private investment much more attractive, once investors have gotten over their suspicion of the new procedure. The greater private investment will diminish the need for deficit spending.
Third, as the national debt increases, and with it the sum of private wealth, there will be an increasingly yield from taxes on higher incomes and inheritances, even if the tax rates are unchanged. These higher tax payments do not represent reductions of spending by the taxpayers. Therefore the government does not have to use these proceeds to maintain the requisite rate of spending, and can devote them to paying the interest on the national debt.
Fourth, as the national debt increases it acts as a self-equilibrating force, gradually diminishing the further need for its growth and finally reaching an equilibrium level where its tendency to grow comes completely to an end. The greater the national debt the greater is the quantity of private wealth. The reason for this is simply that for every dollar of debt owed by the government there is a private creditor who owns the government obligations (possibly through a corporation in which he has shares), and who regards these obligations as part of his private fortune. The greater the private fortunes the less is the incentive to add to them by saving out of current income …
Fifth, if for any reason the government does not wish to see private property grow too much … it can check this by taxing the rich instead of borrowing from them, in its program of financing government spending to maintain full employment. The rich will not reduce their spending significantly, and thus the effects on the economy, apart from the smaller debt, will be the same as if Money had been borrowed from them.