The risk of US government defaulting on its bonds is exactly zero.
That’s the only thing I want to push back here on, because the risk is definitely non-zero. There’s no like technical, structural reason why the US would ever need to default on its bonds, because obviously it controls its own currency and can just print the money it needs to pay the bonds denominated in its own currency, but if the people in power believe that they need to default on those bonds then they absolutely could. And Trump is one such guy. Take a look at this interview:
TRUMP: No, I think this – I think there are times for us to refinance. We refinance debt with longer term, because you know we owe so much money. It’s so – nobody talks about it. Nobody talks about it until the bubble pops, and the bubble could pop, and it could pop, and it could be ugly. You’ve seen it a couple of times, but you haven’t seen it as bad as it could be. As bad as it was, you haven’t seen. And I could see long-term renegotiations, where we borrow long-term at very low rates and, frankly, we do need money to rebuild the infrastructure of our country.
It’s an idea that’s been bouncing around the Trump administration for a bit, a partial default on US bonds so they can refinance at lower interest rates for uh reasons unknown idk they just like fucking around maybe?
Point taken. The US can, in fact, default on its bonds as a political choice, and it would take Congress to do it.
On the flip side, it’s not a bad thing that the US stops selling treasuries (anything beyond a 3-month bills)? Why give out free money to rich people?
Nothing bad can happen if the US just stops selling treasuries (it doesn’t need to borrow to spend) - just a lot of domestic and foreign investors losing their money and won’t buy dollar-denominated treasuries ever again, but then there is no need for a government running a floating exchange rate to do that (just let the interest rate fall to 0%). It’s a regressive system inherited from the gold standard era where your currency is pegged to a metal/some other currency.
Yeah I mean bonds are just savings accounts for rich people. Governments feel beholden to bond markets, and for countries like the large EU ones that don’t issue their own currency they really are, but for a country like the United States it wouldn’t really matter.
That’s the only thing I want to push back here on, because the risk is definitely non-zero. There’s no like technical, structural reason why the US would ever need to default on its bonds, because obviously it controls its own currency and can just print the money it needs to pay the bonds denominated in its own currency, but if the people in power believe that they need to default on those bonds then they absolutely could. And Trump is one such guy. Take a look at this interview:
It’s an idea that’s been bouncing around the Trump administration for a bit, a partial default on US bonds so they can refinance at lower interest rates for uh reasons unknown idk they just like fucking around maybe?
Point taken. The US can, in fact, default on its bonds as a political choice, and it would take Congress to do it.
On the flip side, it’s not a bad thing that the US stops selling treasuries (anything beyond a 3-month bills)? Why give out free money to rich people?
Nothing bad can happen if the US just stops selling treasuries (it doesn’t need to borrow to spend) - just a lot of domestic and foreign investors losing their money and won’t buy dollar-denominated treasuries ever again, but then there is no need for a government running a floating exchange rate to do that (just let the interest rate fall to 0%). It’s a regressive system inherited from the gold standard era where your currency is pegged to a metal/some other currency.
Yea, defaulting on bonds in modern floating system is equivalent to defaulting on cash. Like the Government saying cash is no longer valid.
Treasuries, esp short term treasuries circulate like cash.
Yeah I mean bonds are just savings accounts for rich people. Governments feel beholden to bond markets, and for countries like the large EU ones that don’t issue their own currency they really are, but for a country like the United States it wouldn’t really matter.