Fortunately, as all we good Keynesians know, there is no problem with large quantities of government debt because when interest on the debt is paid out of taxation, there is no direct loss of disposable income. It’s literally textbook economics!
“The interest on an internal debt is paid by Americans to Americans;
there is no direct loss of goods and services. When interest on the debt
is paid out of taxation, there is no direct loss of disposable income;
Paul receives what Peter loses, and sometimes – but only sometimes –
Paul and Peter are one and the same person…. In the future, some of
our grandchildren will be giving up goods and services to other
grandchildren. That is the nub of the matter. The only way we can impose
a direct burden on the future nation as a whole is by incurring an
external debt or by passing along less capital equipment to posterity.”
– Paul Samuelson, Economics, 1948
So, the USA is in good shape despite Debt/GDP passing 100 percent earlier this year. Or is it?
Foreign demand for
U.S. Treasury securities rose to a record level in February, indicating
that international investors remain confident in U.S. debt despite
budget wrangling in Washington. The Treasury
Department said Monday that foreign holdings of U.S. Treasury securities
increased 0.3 percent in February from January to a record $5.66
trillion. It was the 14th straight monthly increase.