Just a small correction. Federal Government spending was $4.4 trillion in 2019. It was $6.6t for 2020 [2], with $4.6t of that being mandatory spending; tax revenue was $3.4t for 2020 by comparison. We wish outlays were only $3t, we'd have a nice budget surplus right now.
"The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default." Alan Greenspan
So yeah, it's just my opinion but to me the mechanics and context of the US's federal debt is so departed from that of household finance, that it's more detrimental than beneficial to even use them in the first place. But again, I understand the desire to anchor it to something people recognize.
In reality, savings and debt are basically two sides of the same coin - one is a promise for future consumption, and the other is a promise to forgo future consumption that balances it out.
One of my favorite simple models is sectoral balances - you can divide US dollar holders into domestic and foreign categories, and then divide up the domestic category into the private sector and the government (leaving 3 categories total).
If you don't print money, the net saving should all add up to zero. If the government is running a surplus, that means the combination of the private and foreign sector is going into debt. If there's a trade deficit, then the combo of the private sector and government are going into debt. Etc.
People can still be against government deficits with such a model, but it's not because everyone should save up at the same time (they literally can't). It's because they want the private sector to go into more debt, and are worried about government debt "crowding out" private sector debt. And more private sector debt isn't always a bad thing - in practice it might mean more housing, factories, and other sorts of investments that debt finances.
Unlike at the micro level, at the macro level your spending is my income.
That alone changes (almost every) received microeconomic intuition.
While this is partially true:
1. Sovereign nations absolutely can and do default. See, Russia in the 1990s and the LTCM fiasco.
2. Even though they do not have to default and can always print money to pay their debts, doing so causes inflation. How much inflation it causes is proportional to how much money is printed.
Now, the dynamics of inflation are pretty complicated, so in certain circumstances you can get away with it for a while. But it is not the case that the government can print money indefinitely with zero consequences.
https://en.wikipedia.org/wiki/1998_Russian_financial_crisis
Most countries just choose not to do this. They weren't forced to default. They could have chosen to monetize their debt. They just didn't choose to do that.
Over time it's gotten harder for me to figure out what the side of caution even is. If they are too aggressive in stimulating the economy, they risk inflation. If they are not aggressive enough they risk a persistently weak economy, escalating political dysfunction, and (if history is a guide) eventual collapse of the status quo and usually even-more-inflationary policies.
It doesn't seem like there is a safe path anywhere - errors on either side seem like they could be potentially catastrophic.
The fed could find itself in the position of fighting a structural imbalance such that for every dollar lent to the government the deficit increases by 1.X dollars. This would be the case under rampant corruption, rampant inflation, or an economy collapsing.
https://en.wikipedia.org/wiki/Carter_bonds https://www.treasury.gov/resource-center/international/ESF/P...
That has negative consequences that are papered over by making simplistic statements like that. The debt is still bad and going to result in bad things happening, and no platitudes from the Fed are going to change that.
Do they? I havent looked in a while but my recollection (of south america in particular) is that the impact of government bond default is actually pretty low. A couple years without good international bond market access, higher premiums for a few years, maybe some wrangling with the IMF and surface level "restructuring." But sooner rather than later its back to issuance on the open market with willing buyers after those premiums.
Argentina: decades of inflation and economic stagnation.
Venezuela: societal collapse.
With game theory, you can see how a certain amount of debt, especially when borrowed from foreign lenders, can be the optimal choice for long term relative national growth. That's pretty much what the US did for most of its history up to ~2001. But unsustainable, growing debt, certainly has consequences.
For a government default is *very* similar to the US personal & commercial bankruptcy process. Its generally structured, governed by contracts, creditors take a negotiated "haircut", payments are deferred or restructured, etc.
In light of this yes, Argentina is a great example of teh real effects. This quick hit from WSJ[1] highlights argentina issuing a new 100-year bond in 2017, with massive subsciption, 3 years after a default and 3 years before the next.
Looking at the articles infographic[2] the timeline actually includes two different defaults, 2001 & 2014. There are 4 lean years of little to no issuance in 02-05, and a tiny hit in the number of issuance in 14-15. My recollection is that larger studies across time and geography actually show minimal impact to yields ~7 years after default.
So yes, governments absolutely have access to mechanisms similar to bankruptcy. And no, default is absolutely not catastrophic to future funding, debt management, or spending. And yes again, the people of places like argentina & venezuela have suffered greatly for generations but that seems to be a different proposition than "governments cant manage huge and/or unsustainable debts without drastic outcomes."
[1] https://www.wsj.com/articles/argentina-sells-2-75-billion-of... [2] https://si.wsj.net/public/resources/images/BF-AR635_ARGENT_1...
No, it exists because government issued commitments to pay people money in the future. A government that creates its own currency has no need to do this to spend more than it takes in in revenue, and even a government that doesn't create its own currency is free to issue such commitments without a deficit.
The two events (1) Congress deciding to spend money (in excess of receipts), and (2) the Treasury issuing debt, are directly causally related. If event (1) doesn’t happen, then event (2) won’t happen. In theory it could, but in reality it does not, period.
It leads to other examples being used that just are not true. Like: "It is similar to a person using his or her credit card for a purchase (rather than cash, check, or a debit card) and not paying the full credit card balance each month".
I cannot sell access to my debt to pay for past debts, which is how the government has paid it's debts since 1837 (probably so long ago because that the last time we sought to destroy debt and not pay for things by monetizing debt, it caused the longest depression in American history due to Jackson's monetary policy in 1835). Nor can I create credit out of thin air, by buying treasuries my member banks. Also, I most definitely do not owe 50% of my non-intergovernmental debt to my own central bank and state and local governments and their pensions. Much less, all the while operating with a currency I control.
So yeah, I don't love it, but I get it.