Maya MacGuineas, president of the Committee for a Responsible Federal Budget, called on lawmakers to “ultimately fix the broken process that got us into this mess.”
I feel like your explanation is missing some details. Because if you owe $1010 in 2027, what good does the comparison to 2026 do you? You can’t pay with last years currency…?
I’m not disagreeing, mind you. Economics is rather arbitrary, after all. Just confused (which does not surprise me).
There is more currency every year because of inflation, which means more available to pay back the debt which is growing slower (in this scenario). Imagine being on the other side of this, you are earning interest on your treasury bonds and planning on using it to buy gas for your car, but in 2027 can buy less gas than 2026 because you got ripped off by the government indirectly.
One problem with this is, at some point people may realize loaning money to the government is a bad deal and stop doing it.
One problem with this is, at some point people may realize loaning money to the government is a bad deal and stop doing it.
People (actually, institutions) keep buying government bonds because they’re typically very low-risk. So you’re losing actual wealth, yes, (a small bit), but it’s the safest form of carrying wealth into the future at all. Like, you could buy gas for your car for $1000 in 2026 instead, but then you risk the price of gas dropping and losing value that way too. Government bonds have a small predictable negative profit, but are virtually risk-free, which makes them attractive nevertheless.
So you’re losing actual wealth, yes, (a small bit), but it’s the safest form of carrying wealth into the future at all
That’s how it has worked, but if we’re talking about the government using inflation as a strategy for getting out of a debt they keep expanding at a faster rate, the assumption of a small, predictable loss won’t necessarily hold. IIRC treasuries suddenly becoming a worse deal was a factor in many US banks being forced to consolidate in recent years.
I feel like your explanation is missing some details. Because if you owe $1010 in 2027, what good does the comparison to 2026 do you? You can’t pay with last years currency…?
I’m not disagreeing, mind you. Economics is rather arbitrary, after all. Just confused (which does not surprise me).
There is more currency every year because of inflation, which means more available to pay back the debt which is growing slower (in this scenario). Imagine being on the other side of this, you are earning interest on your treasury bonds and planning on using it to buy gas for your car, but in 2027 can buy less gas than 2026 because you got ripped off by the government indirectly.
One problem with this is, at some point people may realize loaning money to the government is a bad deal and stop doing it.
Purchasing power I have an easier time wrapping my head around - I’m poor as dirt. So…sorta get it, but not really.
¯\_(ツ)_/¯
People (actually, institutions) keep buying government bonds because they’re typically very low-risk. So you’re losing actual wealth, yes, (a small bit), but it’s the safest form of carrying wealth into the future at all. Like, you could buy gas for your car for $1000 in 2026 instead, but then you risk the price of gas dropping and losing value that way too. Government bonds have a small predictable negative profit, but are virtually risk-free, which makes them attractive nevertheless.
That’s how it has worked, but if we’re talking about the government using inflation as a strategy for getting out of a debt they keep expanding at a faster rate, the assumption of a small, predictable loss won’t necessarily hold. IIRC treasuries suddenly becoming a worse deal was a factor in many US banks being forced to consolidate in recent years.