But interest must be paid on public debt, so that the larger the public debt, the larger the amount taxpayers must pay to service this debt. When the debt is in the trillions of dollars, surely the interest payments on this money are very large. I just checked WP: in 2008, 15% of the tax take went to service the public debt. Since then, debt has increased substantially, but interest rates are low.
First off, per my earlier post, the interest rate on the debt is (and must be) controlled by the central bank, not the bond markets. It can be kept low as long as it's seen as advantageous to do so. But that's secondary to the more important question: Why would you want taxpayers to service the debt? Why that, rather than rolling over the debt and allowing it to grow? Keep in mind, if inflation is your answer, then that's an uphill battle.
> Why would you want taxpayers to service the debt? Why that, rather than rolling over the debt and allowing it to grow? Keep in mind, if inflation is your answer, then that's an uphill battle. But inflation has been kept low for decades. That makes the task of paying off a home mortgage, or a government debt, very difficult. > Why that, rather than rolling over the debt and allowing it to grow? I believe the Federal reserve receives these interest payments. This represents a huge income for private banks to give the government the liberty to borrow money as it pleases. I really can't see the point of having the private banks in the middle to receive this interest. What does this accomplish other than the enrichment of private corporations?
Why would we want to pay off the public debt? Indeed, the fact that you've compared the public debt to a mortgage implies that you don't appreciate the fact that the government issues the currency that denominates the debt, while the same cannot be said for a household. The Federal Reserve is part of the government; they even say so themselves. Indeed, the Fed's profits (primarily from holding so many bonds) are actually paid back to the Treasury. That depends on what you mean by that. If you mean, why do the banks serve as intermediaries between primary auctions and open market operations/repurchase agreements, then the answer is, because of misguided notions that primary auctions represent a "market test" for government debt, and that having the Fed buy bonds directly from the Treasury would be "the central bank financing public deficits," which we've been assured is bad for some reason. If you mean, why do we pay interest on public debt to private banks, then the answer is that we choose to use liquidity management to maintain the interbank lending rate, which requires that there be a risk-free cash alternative that has the same yield as the desired opportunity cost of cash.That makes the task of paying off a home mortgage, or a government debt, very difficult.
I believe the Federal reserve receives these interest payments. This represents a huge income for private banks to give the government the liberty to borrow money as it pleases.
I really can't see the point of having the private banks in the middle to receive this interest. What does this accomplish other than the enrichment of private corporations?