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Comment by MuffinFlavored | Hacker News Reader

> A related myth is that the government needs to repay its debt. “Debt” is a misnomer; government debt is just money (or purchasing power) in another form. A $20 bill is a liability of the Fed, which makes it a liability of the federal government. A $20 bill never has to be repaid; it just is. Fundamentally, Treasuries aren’t much different.

A debt-like characteristic is interest. We "owe interest" to those who hold our debt.

https://www.marketplace.org/2023/05/26/who-does-the-u-s-owe-...

> As of July 2023 it costs $726 billion to maintain the debt, which is 14% of the total federal spending.

https://fiscaldata.treasury.gov/americas-finance-guide/natio....

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Imagine the day when the US will so much in interest that it's budget will be constrained and it can't pay salaries, and it will never pay back the principal

Right, but at an interest rate that the fed sets…

No, the market sets the interest rate. The government issues bonds to fund the government, and they have to offer an interest rate high enough to get buyers for all of the bonds they are selling.

> The Federal Open Markets Committee sets the federal funds rate—also known as the federal funds target rate or the fed funds rate—to guide overnight lending among U.S. banks.

Why does the interest rate end up being close/near/the same as the overnight lending rate the Fed sets? Because why would anybody want any kind of risk when you can get XYZ interest rate risk free overnight short term?

This gets to crux of the matter — market power. Some countries have greater power than ‘the market’ due to their military reach or trade. The US is an extreme example — international trade is largely conducted in their currency and they will and have used their hegemonic military power to maintain that. The USD interest rate is set fundamentally by the Fed. Even other sovereign states with less geopolitical power can also maintain their interest rates by their central banks voting what rate to set them at. The market effect, for them, tends to be the foreign exchange rate of their currency will vary to offset the change in interest rate. That will have some market related limits and is why many countries tend to follow the US Fed’s interest rate decisions. To address the technical aspect of ‘finding borrowers’ the central banks of their own currency tend to be the borrower of last resort and this is why the market moves to the rate that the Fed sets — because the values of existing debt will move

> The USD interest rate is set fundamentally by the Fed.

and fed's function and policy is to follow the market: if inflation is high they increase rate, so at the end market decides through feedback loop

And who sets the Fed’s function? The construction of the market — these very constraints are ideological economic constructions not physics. The government can implement price controls, or tax excess money out of the system. They can introduce a modicum of supply side planning similar to oil reserves to isolate from global market shocks. The fundamentals are that the Fed sets interest rates based on human political considerations — there is no natural law at work here but it’s useful from a politically ideological rhetorical perspective to convince people that there is one-true-way. But the key point here is that the Fed chooses what interest rate that it pays. It can also mint a coin to pay off any outstanding balance. It’s an accounting exercise. The fundamental driving force behind the current accounting mechanism is to place artificial limits on the size of the US government’s involvement in solving US domestic problems

> And who sets the Fed’s function?

law, specifically Federal Reserve Act.

Right, so the point still stands. The Fed is granted the power to literally set the interest rate the US government pays on its debt. Laws that are created through human political means, not natural physical laws. The challenge is that there’s been such a dumbing down of political economic understanding that people have premised their understanding on ‘markets’ being some kind of divine natural law of the universe which blinds debate, arguably intentionally, away from what is possible to what satisfies vested interests

market is yes fundamental natural law of universe, and no matter how you try to trick it through political laws it will bite back in the end.

You’ve highlighted my point about the dumbing down of political economic debate. There’s very literal difference between “market is fundamental natural law of the universe” and any other belief that’s grounded purely in ideology. They have a role to play in resource allocation, yes, but the idea that resources are allocated optimally through blind belief is a poor substitute for critical thought about how they are and can be harnessed, and what effect that has on the real world. One that exists outside of a bunch of bits in a database. It also allows the folks who do have influence over the laws that govern markets the ability to lean on the scales to their own favour

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