Why can’t a government forgive it’s own internal debt?
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That’s the same as defaulting. Going broke and not paying off debts.
Ok, all the latest talk about forgiving student debt means the government literally doesn’t get paid back all the money it loaned out to students. They’re the US federal government though, they’ve got huge pockets and if push comes to shove they can just print more money. In no uncertain terms though, the US federal government would not be receiving that amount of wealth from all these students with debt.
The Internal debt you’re talking about is between organizations or levels of government. Between states and the federal government or cities or other organizations within any of those layers of government. Bonds are just loans that the lender chooses to go make.
If the state of Wyoming owns a $1K bond of US federal debt, they have that because they’re expecting to cash in… $1,050 next year or whatever. They expect that extra $50 next year. That’s why they bought the bond. If that loan is just forgiven like the student loan debt is forgiven, then the state of Wyoming just got screwed out of $1K.
The feds and the state do different things. Feds fund the military, states maintain the roads, cities fund schools. Mostly. If the states get screwed out of money, roads aren’t going to get maintained, but the military will have an easier time buying more stuff.
Whoever is buying government debt will never buy it again if the government defaults, so a government can only ever try that trick once.
Okay, maybe the government can rebrand itself and fix it’s credit rating, but usually there will be blood and decades involved in that bullshit, plus you’ll have pissed off lots of people at home, so the leader’s own life is literally at risk.
Debt is a social construct. The government is sovereign and can do whatever it wants. In other countries it is commonplace for industries to be nationalized or debts forgiven.
There would, however, be consequences. Most of the world economy is structured around complex debt-based financial agreements and the US has a huge part in that. Pulling the rug out would probably cause an economic collapse and many unanticipated side effects.
It can.
A government can declare all debt null and void. This tends to happen after violent revolutions. And tends to be followed by sanctions.
But frankly every other nation and capital institution will have to redraw all agreements with the newly minted revolutionary state anyway. So it’s often just seen as par for the course.
Another option is to just print the money in your own currency. The government controls the printer after all.
Well, if you’re in the EU, and youre using the Euro, you can’t do this. As the Euro is only printed in Frankfurt.
It’s very likely you’ll also incurr inflation when you do that, but since we are no longer on the gold standard inflation isn’t necessarily as bad as it used to be,and can be mitigated in a number of ways.
But… the BIGGEST reason why nations don’t just cancel or pay back their debts is….
It actually makes sense to have debt. A nation’s economy is nothing like a household.
Debt over time loses value due to normal inflation. Which means it’s FAR less costly to pay back debt in 40 years, then it is to pay back that debt today. EVEN if that debt has interests.
If anyone is interested, here’s an example of a state government (a state of the United States) forgiving money it owed to itself: [https://www.capitol.hawaii.gov/sessions/session2018/bills/GM1187_.PDF](https://www.capitol.hawaii.gov/sessions/session2018/bills/GM1187_.PDF)
This occurred in Hawaii, a state of the United States. The Hawaii Tourism Authority is an agency of the Hawaii state government. The Hawaii Tourism Authority owed the (rest of the) Hawaii state government about $192 million for the construction of the Hawaii Convention Center (a big building used to host conventions) and was using revenue from the convention center to pay back the loan. The Hawaii state legislature (the state equivalent of Congress) passed a bill saying the debt is wiped clean and the Governor (the state equivalent of the President) signed the bill into law.
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