Great Minarchistan wrote:They don't. A government can always print more money, and I said this several times over here. However, a bigger risk does hurt the capacity of debt repayment.
No it doesn't. Capacity of government keystroking remains the same.
Great Minarchistan wrote:After all, if you print money to repay debts, the debt holders lose money (hey hey hey let's give you that 1 million dollars bond but now a dollar is worth 90% less, so you end up with 100k HA) or the population does - I discussed it previously so I'm not going further on this point. Therefore, knowing of this risk an investor raises interest rate demand over the bond so he can compensate the money lost and even profit of that loan.
It doesn't work like this. That's why I told you earlier that the system is much worse than you ever imagined. It is a government monopoly, if government doesn't pay you that interest and doesn't sell those bonds to you then you have no place to earn interest. It is not true borrowing al all by the government, issuing money is as much borrowing as issuing treasury securities. Both are government liabilities, technically M0 is fed's liabilty, for this talk here there is no point of separating fed and treasury.
Great Minarchistan wrote: You need to understand that investors aren't retards who are "uh okay" when a government gives less money than they lent. They will chase the government and pressure for more yields to profit from the bond.
Again, what are we talking about? Profit from the bond? Compare to what, compare to earning zero interest on money? Are people dum enough to accept government money when there is inflation and get zero rate? They seem to be.
Or try to imagine fed accepting treasury securities for collateral for loans. Would you as a banker demand 150% interest rate (happened in Russia before Russia defaulted) or just get a loan from the fed. You'd have to be retarded not to get a loan and not to use your bond as a collateral.