Why do governments care so much about reducing public debt if they are the sovereign issuer of their currency?
In: Economics
It’s mainly for political rhetoric. I don’t want to get political but it is a political question imo. It is easier to tell poor people the government can’t help them than it is to tell them that it can but they (senator/representative) are ideologically opposed to it.
Some posts here obviously influenced by mmt and since you mentioned “sovereign issuer” I want to assume you are already aware of who they are since that is a phrase they commonly use.
MMT sometimes is interpreted as saying the debt doesn’t matter but this would be a hyperbolic statement and isn’t entirely accurate. Treasury bonds are used as collateral by the banks and are safe assets unless congress deliberately defaults on them. Until that happens they are a source of stability in our financial system, in contrast to more riskier assets like mortgages. Banks did not have enough treasuries and so resorted to securitizing other assets such as mortgages which led to the 2008 crisis. Some economists say that the debt was not high enough and that Clinton paying down some of it in the late 90’s was in fact a bad move and we suffered for it in 2008.
There are obviously downsides to this though. For one, they are a source of income to people who already have a lot of money and so contribute to wealth inequality which is a real general economic issue certain economic schools see whereas the mainstream largely choose to ignore it.
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