by Public debt — how much is too much? . [embedded content] Public debt is normally nothing to fear, especially if it is financed within the country itself (but even foreign loans can be beneficent for the economy if invested in the right way). Some members of society hold bonds and earn interest on them, while others pay taxes that ultimately pay the interest on the debt. The debt is not a net burden for society as a whole since the debt ‘cancels’ itself out between the two groups. If the state issues bonds at a low-interest rate, unemployment can be reduced without necessarily resulting in strong inflationary pressure. And the
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Lars Pålsson Syll considers the following as important: Economics
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Public debt — how much is too much?
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Public debt is normally nothing to fear, especially if it is financed within the country itself (but even foreign loans can be beneficent for the economy if invested in the right way). Some members of society hold bonds and earn interest on them, while others pay taxes that ultimately pay the interest on the debt. The debt is not a net burden for society as a whole since the debt ‘cancels’ itself out between the two groups. If the state issues bonds at a low-interest rate, unemployment can be reduced without necessarily resulting in strong inflationary pressure. And the inter-generational burden is also not a real burden since — if used in a suitable way — the debt, through its effects on investments and employment, actually makes future generations net winners. There can, of course, be unwanted negative distributional side effects for the future generation, but that is mostly a minor problem since when our children and grandchildren ‘repay’ the public debt these payments will be made to our children and grandchildren.
To both Keynes and Lerner — as to today’s MMTers — it was evident that the state has the ability to promote full employment and a stable price level — and that it should use its powers to do so. If that means that it has to take on debt and underbalance its budget — so let it be! Public debt is neither good nor bad. It is a means to achieve two over-arching macroeconomic goals — full employment and price stability. What is sacred is not to have a balanced budget or running down public debt per se, regardless of the effects on the macroeconomic goals. If ‘sound finance,’ austerity and balanced budgets means increased unemployment and destabilizing prices, they have to be abandoned.
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.