Larry:

What happens if our government can’t repay a bond or other obligation when it comes due on maturity?

Barry:

That’s unlikely, because if the holders of the debt were unwilling to accept a new, “rollover”, obligation in place of the one which is due, the U.S. Treasury Department would make the money available to pay the debt.

Larry:

From where will the Treasury get the money?

Barry:

Either from existing reserves, or by borrowing the money through the issuance of more obligations.

Larry:

Can the Treasury borrow all the money the government needs?

Barry:

Yes, if there are lenders willing to accept the terms offered and if the Congressionally approved debt limit is not exceeded.

Larry:

Is anyone personally obligated to make repayment if the government is unable or unwilling to do so?

Barry:

No, there are only a few jurisdictions in the world, not including the U.S., where there is personal liability of individuals for organizational obligations. The government officials continue to receive their salaries, health and other benefits, reimbursement of expenses and pensions, regardless of what happens to investors in obligations incurred by their employers.

Larry:

Then, only money lending investors ultimately control the amount of money governments have available.

Barry:

Yes, and both the terms of the loans and the comparative value of the currency are that which will determine investor decisions and actions.

Larry:

So, the more the government borrows and the higher the interest rate paid, the lower should be the value of the government’s currency. Right?

Barry:

Theoretically yes, but it will depend on international investor comparative assessment of the prospects for the governments issuing the debt. Some will be found more attractive than others and that will be reflected in the market valuations of the debt.

Larry:

Then shouldn’t it be better for us if our government was to borrow less and be able to attract investors without paying a higher interest rate?

Barry:

Of course, but then where would the Treasury get the money to repay the principal, and all the interest on prior debt, and all the Congressionally approved programs for health, education, retirement, and physical assets necessary to provide the services we expect?

Larry:

So, if we can’t realistically reduce our debt, and voters continue to demand ever-increasing government services, our currency will decline and our money will be worth less internationally, making it more expensive to live here.

Barry:

Yes, unless we can increase our national productivity and therefore tax revenues, so we have a tax surplus, rather than a deficit.

Larry:

Therefore, we will have to create programs resulting in workers who are even more productive. This means better and more economy relevant STEM education, starting in early education, as well as a greater utilization of robotic technology.

Barry:

That should be possible, if politically supported, and sufficiently financed. Money must be invested to make money.

Larry:

I am relieved, as from what seemed to be an otherwise hopeless mess, there is a possible path to prosperity.

Barry:

If ….