Looking at the ever-increasing amount of government debt across developed economies, one could be forgiven for thinking that politicians don’t care about debt sustainability, fiscal deficits, or any of that stuff.
Back in school, I was always taught that all savings are simply deferred consumption.
If institutions such as insurance companies or individual pension savers, with long-term liabilities to match, lend money to the government by buying bonds, and the government injects that cash back into the economy by spending it right away, don't we all benefit from the velocity of money https://en.wikipedia.org/wiki/Velocity_of_money and multiplier effect https://en.wikipedia.org/wiki/Multiplier_(economics) more so than if that money were hoarded as personal savings ... worse than what happens in a deflationary environment? And if your bond holders are mostly domestic, then isn't the whole thing simply an inter-generational terrarium https://en.wikipedia.org/wiki/Terrarium , with Japan perhaps standing as the best example?
Compared to other developed economies, Germany is notorious for running its national accounts like a household budget, and everyone thinks they're being facile, and that they should lighten up and run up some debt to stimulate the economy; until they don't because they simultaneously like Bunds' "safe haven" status. If you're a serially fiscally mis-managed country, you're either going to have to pay an extortionate interest rate or eventully no one will lend you money. If you're Germany or the US, even foreigners want to park their money with you and clip modest coupons, so why not take advantage of that?
40 years later and the government bond market remains a complete mystery to me.
Surely the notion that one day the debt of the US and the UK will one day be repaid is for the birds. Even I, not an economist, has realised that. It is a myth sustained by the lenders, and the borrowers only pretend to believe it because it suits them very well. In any case, even if the reckoning comes one day, it will be in the distant future, long after they have gone (to the bosom of Abraham, I hope .
Well elucidated . Good read
Back in school, I was always taught that all savings are simply deferred consumption.
If institutions such as insurance companies or individual pension savers, with long-term liabilities to match, lend money to the government by buying bonds, and the government injects that cash back into the economy by spending it right away, don't we all benefit from the velocity of money https://en.wikipedia.org/wiki/Velocity_of_money and multiplier effect https://en.wikipedia.org/wiki/Multiplier_(economics) more so than if that money were hoarded as personal savings ... worse than what happens in a deflationary environment? And if your bond holders are mostly domestic, then isn't the whole thing simply an inter-generational terrarium https://en.wikipedia.org/wiki/Terrarium , with Japan perhaps standing as the best example?
Compared to other developed economies, Germany is notorious for running its national accounts like a household budget, and everyone thinks they're being facile, and that they should lighten up and run up some debt to stimulate the economy; until they don't because they simultaneously like Bunds' "safe haven" status. If you're a serially fiscally mis-managed country, you're either going to have to pay an extortionate interest rate or eventully no one will lend you money. If you're Germany or the US, even foreigners want to park their money with you and clip modest coupons, so why not take advantage of that?
40 years later and the government bond market remains a complete mystery to me.
Surely the notion that one day the debt of the US and the UK will one day be repaid is for the birds. Even I, not an economist, has realised that. It is a myth sustained by the lenders, and the borrowers only pretend to believe it because it suits them very well. In any case, even if the reckoning comes one day, it will be in the distant future, long after they have gone (to the bosom of Abraham, I hope .
Agreed. The debt will never be repaid. But we have to keep the illusion up or people will want their money back...