[Steve_American]

As a result of the news coverage of the SVB collapse, I learned what banks do with their depositors' money. They must invest all they can in very safe very liquid assets, like US bonds.
. . . They can't lend them out as loans because any run on the bank would be impossible to survive becuse the money would not be there. Most loans can't be "called", and even if called, the bowrrower could not return the full amount inside 24 hours.

AFAIK, IMHO, this is another reason that the national debt can never be a problem. All the fuss about how it must be paid off someday is a lie. Banks need it to have a safe place to invest their depositors' money. So, not only would having a surplus of (say) $500 B/year for 60 years crush the US economy after just 2 or 3 years, the rich who own the nation's banks want the debt to keep growing so their banks have more good assets to use to invest their depositors' money.

Since I'm not an expert, please explain to me how this is wrong. If you can.

This goes directly to the current fuss about the debt ceiling. Why should we worry about the size of a debt that can never be paid off except by using trillions of newly created dollars, and that is serving a good purpose in the economy? Why is limiting the national debt being pushed as a good thing?

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[Puffer Fish]

AFAIK, IMHO, this is another reason that the national debt can never be a problem. All the fuss about how it must be paid off someday is a lie. Banks need it to have a safe place to invest their depositors' money.

What about when banks become oversaturated with this debt and do not feel a need to buy more?

When the difference between the expected inflation rate and the interest return rate on that government debt becomes almost zero, banks are not going to see much reason to buy those bonds. Especially if there is volatility, like they think there is a risk of inflation going up, which would result in losses on that government debt.

Here is a little statistic for you. Slightly less than 6% of the U.S. debt is held by banks (depository institutions).

That right there makes your argument look pretty weak.

[Puffer Fish]

Why should we worry about the size of a debt that can never be paid off except by using trillions of newly created dollars, and that is serving a good purpose in the economy? Why is limiting the national debt being pushed as a good thing?

Because it will ruin the country's credit rating.

It could also lead to very rapid inflation. You can't inflate this debt a little bit over time because then lenders will expect that inflation and demand higher rates of return, driving up interest rates.


How about just say no more borrowing. Tell us why it would be such a big deal not to raise the debt ceiling.

There seems to be a BIG flaw in your logic. You say getting into debt is not a big deal because the money can just be printed later. But why not just print it now? See, according to your logic, the issue of getting into debt should be irrelevant.
A part of me has to suspect that you actually KNOW on some level that printing the money now would create inflation and be impossible. So you want to kick the can down the road.

[Steve_American]

Because it will ruin the country's credit rating.

It could also lead to very rapid inflation. You can't inflate this debt a little bit over time because then lenders will expect that inflation and demand higher rates of return, driving up interest rates.


How about just say no more borrowing. Tell us why it would be such a big deal not to raise the debt ceiling.

There seems to be a BIG flaw in your logic. You say getting into debt is not a big deal because the money can just be printed later. But why not just print it now? See, according to your logic, the issue of getting into debt should be irrelevant.
A part of me has to suspect that you actually KNOW on some level that printing the money now would create inflation and be impossible. So you want to kick the can down the road.

MMTers assert that the credit rating of the US Gov. doesn't matter. This is because the Gov. can stop letting the market set or influence the interest rate of Gov. bonds; and just tell the buyers what it will pay. If nobody wants them, it doesn't matter because the Gov. doesn't need to sell bonds at all. That is, bonds are a tradition left over from the gold standard. Now that the gold standary is no more (evcept in a way in the EZ and less so in the EU) selling bonds is no longer necessary to protect the nation's gold supply.

You just assert there [if l understand your point] that having a large naational debt "can" lead to very rapid inflation. Japan proves that even a debt to GDP of 240% doesn't always lead to any inflation.
. . . Also, MMTers assert that their Job Guarantee Prigram will not let wage demand ever cause inflation. Inflation will happen when there are shortages like we saw with covid, or when the Gov. keeps deficit spending when all the labor and/or resources the nation can get its hands on are already being used by the economy.

Some founding MMTers do suggest that the Gov. just "deficit spend"** and not sell bonds in equal amounts, because it isn't necessary to cover the deficit with bonds.

Because I see bonds as a form of saving, and I assert that dollars saved can't bid up prices, and so don't add to inflation; IMO just spending more dollars than the Gov collects is more likely to be inflationary than selling bonds. But, I'm no expert, and MMT experts disagree with me.

** MMTers hate the term 'deficit spend'. They want to emphasize the other side of the transaction, which is the surlus that the non-gov. sector of the economy (private + foreign) gets (by definition) when the Gov. has a deficit.

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[Steve_American]

What about when banks become oversaturated with this debt and do not feel a need to buy more?

When the difference between the expected inflation rate and the interest return rate on that government debt becomes almost zero, banks are not going to see much reason to buy those bonds. Especially if there is volatility, like they think there is a risk of inflation going up, which would result in losses on that government debt.
Here is a little statistic for you. Slightly less than 6% of the U.S. debt is held by banks (depository institutions).

That right there makes your argument look pretty weak.

Any interest income is better than no interest interest. What other options do banks have? They can't lend their depositors' money, they need to invest it in very safe, very liquid assets. What are those assets?

AFAIK, in the EZ the ECB has a negative interest rate it charges banks on their reserves. So, having euros in reserves costs the bank more money than holding cash.

So, how much are we talking about?

What was United States's Total Deposits in Feb 2023?
Last = 17,610,348.100 Feb 2023

I read that as 17.6 trllion dollars. So, 6% of about $31 trillion = $1.86 trillion.
This means [1.86/17.6 =0.106 =10.6%] about 11% of US banks' deposits are invested in US bonds.
I agree that this fact weakens my point.

MMTers l follow have asserted that banks in Aust. and in the EU have demanded that there be more Gov. bonds for them to buy from time to time.

AFAIK, the fact that the US sells so many new bonds every year is part of what makes the dollar so good as the world's reserve currency. That is, nations that don't sell a lot of bonds are less good as a reserve currency because it is harder to earn safe interest with them. So, the euro will never replace the dollar, because their treaty requires austerity. So, when, it will soon go back to following the rules, the EU nations will stop selling bonds because they can't increase their national debts because they are maxed out already. [BTW --- MMTers assert that this will cause massive economic hardship in the EU, precisely because Gov. deficits are necessary to have a good economy. This is because people want to save and buy things from overseas, both of which reduces the money supply and reduce the GDP. This means that only bank lending grows the GDP by adding to the total income. But, when people have to stop borrowing, this will cause a deep recession because [as I have explained before] a large private debt is far worse than a large Gov. debt. Do I need to explain how this works again?

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