by Summary:
Too little public debt can be as damaging economically as to much public debt, since public debt is the one-to-one measure of deficit spending, and public spending increase flows, both financial and economic, in the economy. On the other hand, MMT shows that issuance of public debt is unnecessary for funding governments that are currency sovereigns and suggests that interest payments on public debt constitute a subsidy to bond holders. Thus, the need arise to justify the continued issuance of interest-bearing public debt beyond cash-equivalents (short-term notes) for convenience of finance and commerce. One such justification, and likely the most significant one, is that default risk-free debt reduces overall risk in the financial system. For example, financial institutions
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Mike Norman considers the following as important: public debt
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Too little public debt can be as damaging economically as to much public debt, since public debt is the one-to-one measure of deficit spending, and public spending increase flows, both financial and economic, in the economy. On the other hand, MMT shows that issuance of public debt is unnecessary for funding governments that are currency sovereigns and suggests that interest payments on public debt constitute a subsidy to bond holders. Thus, the need arise to justify the continued issuance of interest-bearing public debt beyond cash-equivalents (short-term notes) for convenience of finance and commerce. One such justification, and likely the most significant one, is that default risk-free debt reduces overall risk in the financial system. For example, financial institutions
Topics:
Mike Norman considers the following as important: public debt
This could be interesting, too:
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Too little public debt can be as damaging economically as to much public debt, since public debt is the one-to-one measure of deficit spending, and public spending increase flows, both financial and economic, in the economy.
On the other hand, MMT shows that issuance of public debt is unnecessary for funding governments that are currency sovereigns and suggests that interest payments on public debt constitute a subsidy to bond holders.
Thus, the need arise to justify the continued issuance of interest-bearing public debt beyond cash-equivalents (short-term notes) for convenience of finance and commerce.
One such justification, and likely the most significant one, is that default risk-free debt reduces overall risk in the financial system. For example, financial institutions and fiduciary institutions like pensions are often required to keep a percentage of their assets in public debt instruments in order to reduce risk-exposure.
The ratio of private and public debt is an indication of the risk exposure in an economy, with higher levels of private debt to public debt indicating increased systemic risk.
Fiscal deficits result in changes in net financial assets in aggregate for non-government. This affects non-government saving. Issuance of public debt provides non-government a default risk-free vehicle for saving the aggregate net financial assets injected by net pubic spending.
Thus, there may be a sweet spot economically for the amount of both public spending and public debt with respect to functional finance and economic policy.
Give the public debt some respect and end austerity!
Lars P. Syll | Professor, Malmo University