Great article! What's your take on the alleged billions or maybe a trillion in interest payments we make on the national debt. Where does that fit into sovereign currency.
This is a brilliant and insightful question! Interest payments are dollars the government creates, just like any other spending. The government can't "run out" of dollars to pay interest any more than it can run out to pay salaries or contractors.
But interest payments absolutely matter for the real economy in a few important ways:
1. They're a distributional choice Those dollars flow mostly to bondholders - wealthy individuals, pension funds, foreign governments. That's a policy choice about who gets purchasing power. We're choosing to transfer wealth to bondholders rather than spending those dollars elsewhere or not creating them at all.
2. They affect inflation like any spending Interest payments put dollars into the economy. If they're adding too much purchasing power relative to available goods and services, they contribute to inflation pressure - just like any other government spending would.
3. They create a feedback loop Higher interest rates → higher payments → more dollars flowing into the economy → potentially more inflation if not offset by taxes or reduced spending elsewhere. This is one reason the Fed's interest rate decisions matter so much.
This is exactly why professional economic capacity analysis matters. The question isn't "can we afford the interest?" (we always can in dollar terms). The questions are:
What are the economic effects of these payments?
Are they serving our policy goals?
What trade-offs are we making by paying bondholders vs. other uses of that spending capacity?
Are we managing the inflation risk appropriately?
The constraint isn't solvency. It's whether this particular form of spending serves our economic objectives better than alternatives.
Does that help clarify how interest payments fit into the sovereign currency framework?
This was very insightful. Thanks for your thorough response, Jason. I'm intrigued by this approach to federal monetary policy. I've always believed that the US can afford whatever they think is important. It's all policy choices. When some faction in the government claims we need to cut spending they're really saying don't cut our spending, cut theirs.
Your list of possible questions raises so many questions and exposes more corruption. To answer them, politicians would have to give up the facade of leverage they think they have over voters on monetary policy, etc.
Great article! What's your take on the alleged billions or maybe a trillion in interest payments we make on the national debt. Where does that fit into sovereign currency.
This is a brilliant and insightful question! Interest payments are dollars the government creates, just like any other spending. The government can't "run out" of dollars to pay interest any more than it can run out to pay salaries or contractors.
But interest payments absolutely matter for the real economy in a few important ways:
1. They're a distributional choice Those dollars flow mostly to bondholders - wealthy individuals, pension funds, foreign governments. That's a policy choice about who gets purchasing power. We're choosing to transfer wealth to bondholders rather than spending those dollars elsewhere or not creating them at all.
2. They affect inflation like any spending Interest payments put dollars into the economy. If they're adding too much purchasing power relative to available goods and services, they contribute to inflation pressure - just like any other government spending would.
3. They create a feedback loop Higher interest rates → higher payments → more dollars flowing into the economy → potentially more inflation if not offset by taxes or reduced spending elsewhere. This is one reason the Fed's interest rate decisions matter so much.
This is exactly why professional economic capacity analysis matters. The question isn't "can we afford the interest?" (we always can in dollar terms). The questions are:
What are the economic effects of these payments?
Are they serving our policy goals?
What trade-offs are we making by paying bondholders vs. other uses of that spending capacity?
Are we managing the inflation risk appropriately?
The constraint isn't solvency. It's whether this particular form of spending serves our economic objectives better than alternatives.
Does that help clarify how interest payments fit into the sovereign currency framework?
This was very insightful. Thanks for your thorough response, Jason. I'm intrigued by this approach to federal monetary policy. I've always believed that the US can afford whatever they think is important. It's all policy choices. When some faction in the government claims we need to cut spending they're really saying don't cut our spending, cut theirs.
Your list of possible questions raises so many questions and exposes more corruption. To answer them, politicians would have to give up the facade of leverage they think they have over voters on monetary policy, etc.