

Why the U.S. Government Never Has to Pay Back All Its Debt - cawel
http://www.theatlantic.com/business/archive/2013/02/why-the-us-government-never-ever-has-to-pay-back-all-its-debt/272747/

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snowwrestler
The first thing to understand is that the U.S. government does not have to
ever run a surplus in order to pay back its debt. Debt service is included in
the budget; running budgets that are merely balanced is enough.

The second thing to understand is that the U.S. government is the financier of
last resort, and thus, has nowhere to store surpluses other than itself. That
is why the Social Security trust fund is invested in U.S. Treasury
bonds...nothing is more trustworthy. Thus we find the perverse result that
government surpluses actually create more government debt! So not only is a
balanced budget sufficient, it is the optimum.

So the U.S. government's only option to finance capital investments is debt.
In the startup world you can find an angel or VC to infuse you with cash in
return for equity; but the U.S. government's equity offering is already fully
subscribed (it belongs to the citizens). So the government's only option for
unplanned expenditures is to issue debt.

From this we can see that it is expected that U.S. budgets will habitually
miss low. Debt acculumates because it is the best way for the government to
manage its finances. The amount of debt, and its rate of growth, matters only
in the context of what the U.S. economy is doing.

When a company experiences a sales slump, they can dip into capital to
maintain operations until sales improve. When the U.S. economy hits a slump,
we only have debt--so debt has gone up. This is an expected result, not a
crisis. We just have to make sure the rate of debt growth falls under GDP
growth as part of the recovery.

