Why does the US have any dollar-denominated debt?

[Recursion]

It's still kind of odd, at least on first blush.

The US Government literally can't ever "need" a dollar; it can create as many of them as it wants at any time. Yes, that would cause problems, which is my point: the government borrows dollars because that's preferable (for some value of the term) to the problems that would come with the government's "having" more dollars. It's kind of backwards to look at it as "the government spending money it doesn't have".

Why do we maintain a debt denominated in an instrument we can create as many of as we want at any point?

[Nuclear Unicorn]

1. How should the government pay for the costs it incurs?

[Recursion]

2. With dollars?

Maybe I'm not understanding your question?

[Nuclear Unicorn]

6. It may be me who is not understanding.

If I understood correctly, you were asking why should the government hold debt in an instrument it has the ability to create at whim.

Debt is the cumulative total of all deficits but all deficits are incurred expenses exceeding revenue. If they can erase debt by printing money they would effectively be paying for incurred expenses with that same just-printed money.

Except nobody would accept it because it would literally be worthless and as such they would devalue all other currency in circulation and this crashing the economy a.k.a. the tax base. See: Weimar Republic and Argentina for a modern examples of this phenomenon.


Which is probably why they don't try print their way out of debt.

[Jester Messiah]

3. Not being condescending, but the answer is basic economics.

When you make more dollars out of "thin air" as it were, you devalue the dollar. Think of it this way: there is a value, let's call it N, which represents the economic strength of the United States. The sum total of all existing dollars is D. D == N. This is fixed. Sum(d) = D. Since the value of D cannot change, if the number of items creating the sum increases, the value of each item in the set must become fractionally less.

[Recursion]

4. I'm aware it devalues the dollar

So, hell, that solves two problems: borrowing decreases and the dollar's overvaluation is reduced.

(That said, I think we're still paying negative real interest on most bonds, so that's a reason to borrow.)

[Warren Stupidity]

7. Throughout history governments that have attempted to print their way out of debt have failed.

Backing the dollar with bonds, and faithfully paying off those bonds makes the dollar retain its value. The 30 year t is 2.6% - that is not negative. Short term rates (e.g. 1 month) are near 0.

[metalbot]

14. That isn't necessarily true

The economic strength of the United States definitely changes (grows) over time. If D were truly fixed, we'd be in a deflationary spiral.

[Jester Messiah]

16. D is fixed to N. N can move. [nt]

[AngryAmish]

5. It is dollar denominated just for the reason you say.

The better question is why Puerto Rico and Greece etc dwenominate their debts in currencies they cannot control.

[PoliticAverse]

8. Because people that say the debt is no big deal because we can just print the money...

are apparently unaware of the places where that has happened.

[edgineered]

9. Maybe posing the question differently

How is it that we are introduced to the dollar system and accept that it has value? The makers of the instrument (the dollar) are the only ones able to do so, and we as a population simply accept that and go along with it. It becomes a matter of blind trust and people using the dollar become dependant on it; like a drug addiction, and must always have some. Like anyone with an addiction more is better, thus we go into debt. The dealer lets us have a little bit more which we quickly use and then run back to the dealer.

[EmperorHasNoClothes]

10. The same could be said of anything of value

The dollar only has value because we believe it does. Does gold have any real, intrinsic value? Do diamonds, or baseball cards, or beanie babies?

Everything that has value only has value as long as there is demand for it. Printing more dollars increases the supply, thereby reducing the demand and so the net value decreases as well.

[Adrahil]

12. Exactly. NOTHING has "intrinsic value."

It's value is entirely constructed by us. And some of that construction is based entirely on artificial concepts of rarity. People pay RIDICULOUS amounts of money for diamonds, when high quality cubic zirconia and silicon carbide (Moissanite) are visually nearly identical to (or even superior to) natural diamonds, but people STILL want to pay ridiculous amounts of money for them. People are interesting .

[Adrahil]

11. The idea is to limit growth of the money supply.

If government just printed money whenever it wanted it, it would result in runaway inflation. See: Weimar Republic. The WR basically just printed money to meet its financial needs and in 10 years, the value of the Mark dropped from about 4 Marks to the dollar to about 1 million Marks to the dollar.

See also Zimbabwe. And Venezuela.

Of course, the government can and does "print money" on occasion, and has done so quite a bit since 2008. It was the controversial "Quantitative Easing" of the Fed. The Fed has the authority to "purchase" bonds from the government without actually having the cash. In other words, the Fed simply creates the the money, and the money is used to purchase bonds (thus providing money to the government), but it is done at such a rate as to limit the impact on inflation. So far, it has worked (inflation remains at very low levels).

[1939]

15. In our own history

During the American Revolution, the Continental Congress created currency to pay its bills with no backing. Quickly the phrase became current "not worth a continental".

The Confederacy tried to print their way through the cost of the Civil War and by 1865, their money was essentially worthless.

[JVS]

13. Why would the US want anything other than dollar denominated debt?

Taking debt in a currency you're not in charge of can suck. Look at how unhappy Greece is paying debts in a currency they have no control over.


Even on a level of village economics, I'd rather owe you a few dozen of my chocolate chip cookies than a few pizzas from the corner shop.