National debt is total outstanding treasuries. These bonds, have different lifetimes. This means that not all of them expire at the same time. Some need to be pay out at the beginning of the day, while the majority of the debt is still withstanding. The treasury takes, let's say 100 dollars, and pays 70 dollars in expired treasuries. 30 dollars is deficit spent. They are going to receive 20 dollars the following year in taxes from the expired treasuries, so they take 20 dollars and credit back to the treasury's account from current taxes. The remaining 80 dollars is printed as treasuries, and they are bought. If you notice in this example, more treasuries were created than what was paid out. This is our current practice. If we take a more austerical route, then the tax credit could increase, less would be deficit spent, or both, but the overall procedure still remains. Also, it is to note, that the treasury pretty much has the same amount of money every day, until it receives a deposit from The Fed yearly. This means the treasury can expand the overall debt and use the same amount of money. They are just printing more than that which are expiring using the procedure above.
Also, if the treasury ever needs money, they can just print bonds to the fed, however, it is expected for that money to be paid back at interest.
How can investors and private banks buy more and more bonds? Deficit spending. Deficit spending continually increases bank reserves, which allows for more and more lending, which expands the money supply, which allows people to "make it" or if they have already made it, to make even more money. This allows the private sector to buy an ever increasing amount of debt. Loans. The buying of the treasuries allows the treasury to stay current with their account while deficit spending, which in turn increases reserves, which allows the purchase of more treasuries, which allows deficit spending, which makes more loans. It's a feedback loop. And now, realizing this basic knowledge, you can see how detrimental capping the national debt would be. It literally stops this whole feedback loop. And what would happen, is what I spelled out in that previous post.
It's completely sustainable. If you need evidence look at the fact that we are 18 trillion dollars in debt, and I can still buy stuff. The whole economy is still running. If it is so bad, then why hasn't it collapsed?
The Fed actually doesn't own as much debt as you think it does. Also, it is in it to make a profit. It takes the interest it makes on its assets, or government debt, and then turns it into a computerized system that trades currencies. They also receive interest from banks who take out loans, and they receive fees for certain services they provide for banks. At a certain point of the year, The Fed determines its expenses, which I am presuming includes insane salaries, and after that is done, the rest is sent to the treasury. This expands the overall account that the treasury has. Which means it can print more, it can pay off the ever increasing debt that it is printing, and it can deficit spend more while keeping accounts current. In theory, over time, the amount of taxes the treasury receives increases due to economic growth or policy change, or both. This means less has to be printed to satisfy their accounts.
In a more basic sense, is if the treasury can't print, banks eventually stop lending. That, is when things get very bad.
In a fundamental sense, realize that not all of the debt expires at the same time. So the treasury can take the same amount of money and expand the debt while deficit spending.
