That shallow understanding understands the treasury churns short term debt monthly. The shallow understanding understands that the interest will be 479 billion a year and is rising with increased interest rates. 17 billion is in the public domain, the rest is borrowed from other Federal agencies.
If the monopoly issuer of the nation’s sovereign currency had any need to borrow its own currency to enable spending I might agree with you, but that isn’t the case. Both Treasury bonds and taxation are “currency drains”, not revenue. Issuing bonds is mostly an unnecessary operation that is rooted in the gold standard and we could easily do without it. Its primary utility is, and always has been, reducing the total money supply and providing leverage for the Fed in setting interest rates. The money invested in purchasing bonds is, like all revenue of the federal government, deleted by the debt that created it.
If you understood Fed/Treasury operations you would know that spending by the federal government is the only “net” source of excess reserves in the system that are able to purchase bonds or pay taxes. It is more accurate to state that spending “funds” both bonds and taxes than the reverse. Every dollar created by the government becomes someone’s assets in the private sector, including interest payments. That $479 billion represents a net increase in the money supply, not a cost to taxpayers. It is only when we attempt to force our household budget logic onto the issuer of the currency that any of this remotely resembles debt.
This government can pay for anything until that little thing called the investor demands a risk premium on our junk treasuries. After all how many treasuries do you own? Most Americans can honestly say, none.
Treasury bonds will always return what is advertised because Congress can create as much money as necessary to assure that. It appears that the only ones concerned about their value are American conservatives pushing their constant doomsday rhetoric whenever the subject of spending for the public purpose comes up.
The Fed is always able to determine the rate on bonds because it can purchase any quantity necessary to set the rate because it shares a balance sheet with Treasury and any purchases balance to zero. Selling debt is not a prerequisite to spending anyway and mostly now just serves to furnish a bottom for investments. Of all of the processes of our monetary system bonds are the least functional. Deficit spending by the federal government creates the only excess reserves available to purchase bonds. If you have a single dollar in the bank or wallet you have a piece of the national debt, and that debt is represented by Treasury bonds.
The world will eventually decide how much debt is to much debt as they move away from the dollar as the world standard currency, and investors say no thank you.
We haven’t technically had the currency of trade since ’71 and it doesn’t appear to have reduced the use of the US dollar for global trade. It makes no real difference to our economy as we would simply have to convert dollars to whatever is used to denominate trade as every other country does now. If that caused imports to cost more we would simply make more stuff here. OH, THE HORROR!! Imports are always a zero cost item in macro. We trade paper that we mostly pull from our backsides for real resources and labor without the resource drain or pollution.
