Why the National Debt Is the Wrong Problem to Care About | Hacker News Reader

Why the National Debt Is the Wrong Problem to Care About

devinhelton.com

12 pointsgiardini5 comments

The article has the following sentence:

"Imagine the Fed printed dollars and bought all the T-bills in the world at market prices. Would this cause inflation? No. No one’s balance sheet has changed a bit (since the t-bills were bought at market prices)."

This ignores the fact that the printed money traded for the T-Bills will be spent by the government into the general economy.

To claim that no one's balance sheet has changed is either ignorant or intentionally misleading.

The cash traded for the T-Bills will be spent in the general economy, but the T-Bills themselves, which are equivalent to cash from institutions' perspective, will no longer be spent. There's no inflation because these impacts offset each other. The Treasury's balance sheet would nominally change, because it accounts for cash different than outstanding T-Bills. Non-government institutions' balance sheets wouldn't change at all, because T-Bills are cash equivalents [0] from an accounting perspective, which reflects their usage in practice.

[0] https://www.investopedia.com/terms/c/cashequivalents.asp

This article operates on the invalid assumption that a T-Bill (aka Treasury Bond) and money are the same thing. Which is the equivalent of saying a car and money are the same thing. A car might be worth a certain amount of money, but it isn't money. Of course I can buy a car or T-Bill, and my net worth stays the same, but I have less money and someone else gets more.

The author's assertion is that the government can borrow money, spend it, then print money to pay off the debt and somehow not increase the money supply. The government would have be better off just printing money rather than borrowing it so they don't have to pay interest. Either way, the money supply in the economy is increased which will almost certainly lead to inflation.

Compared to a car, T-Bills are much more liquid, and their value is stable over time and easily determinable. This is why they're the canonical example of a cash equivalent [0]. From financial institutions' perspective, they're more "cash-like" than cash, in part because they're easier to work with than briefcases of $100 bills.

> The author's assertion is that the government can borrow money, spend it, then print money to pay off the debt and somehow not increase the money supply.

The government can borrow money, use it to repurchase government-issued cash equivalents, then print cash, the the money supply will not increase. While private institutions prefer to use T-Bills for liquidity, they can use briefcases of $100 bills - their balance sheets would look exactly the same (because from an accounting perspective, cash equivalents are, well, equivalent to cash), and the Treasury's would be only nominally different. Maybe T-Bills would start trading at a premium because it's valuable to not have to deal with physical cash, but other than that, nothing would change.

[0] https://www.investopedia.com/terms/c/cashequivalents.asp

Your point in non-nonsensical. If T-Bills are equal to cash, then the government doesn't need to sell them, they'd just use them like cash. Yes, they are very liquid, but they are not cash. Even if they are only cash-equivalent in certain situations, they'd be increasing the money supply by freeing up the cash that would otherwise be used in it's place.

"The government can borrow money, use it to repurchase government-issued cash equivalents"

Yes, this is what's being done today. But it does not resolve the government's debt, it just changes who they owe it to and when plus interest. So the net effect is an increase in debt. This process is only sustainable for as long as people are willing to lend the government money.

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