America borrowed money from France to fund its revolution. America was then able to issue its own currency, but it also had to tax. If there's money already issued, it seems to me you can issue bonds without creating further currency.
Taxation is what drives the need for the currency that the issuing government demands in payment. However, one must first give the people sufficient currency to pay the tax plus enough to satisfy their desire to save in that currency. Otherwise they'll figure out that you are stealing resources from them.
Bonds have never been a funding mechanism for spending at the federal level. They do little more than draw down reserves that have been already spent into the private sector.
If you think about it, the wealthy should prefer that the government be financed with bonds. Because it will pay them interest or dividends that are payed from direct tax revenue. Whereas the other classes should prefer that the government be financed through straight taxation.
This was true when we did that whole gold standard silliness, but even then bonds only drew down excess reserves to allow Congress room to spend below the value of the gold reserve. Bonds can never fund anything because they require currency to purchase and one cannot lend what doesn't yet exist.
The wealthy love bonds. They simply understand money better than the average politician and know they aren't funding anything except their own monetary security. They also know that taxation, like bond issues, cannot fund government spending either, which is why they are so opposed to it.
So, why would the wealthy be worried about high deficits? Because bonds are only good if the debt payments are made. The wealthy fear the higher deficits due to danger of default.
The monopoly issuer of the currency "CANNOT" default on any debt denominated in its own currency. It can always create the currency needed to make any payment. Also, unless deficit spending occurs there is no free money in the system to purchase bonds. The national debt is all accumulated deficits since our founding. It is all money created that hasn't yet been recalled in taxation. It is our savings.
Therefore, when there's an economic crisis and a government enforces austerity, what its really doing is assuring the wealthy that the bond payments will be the priority above the general welfare.
Why isn't austerity considered an economic crisis. It certainly would be in any other advanced nation. Imagine Denmark or France telling the people they can no longer afford their healthcare. The guillotine business would see a resurgence. The wealthy know that the Treasury will never have to make that choice for reasons mentioned above. The wealthy mostly got their wealth as employers and employees who are monetarily insecure are much easier to manage and less demanding. Quitting one's job is a whole lot easier to do if one doesn't lose their healthcare or other critical benefits.
