Fred Weblog — How Expensive Is It To Service The National Debt? : A Battle Betwixt Involvement Rates Together With Increment Rates

Not that affordability is relevant from the MMT POV, only it's worth looking at anyway. "They" persuasion it conventionally inward price of the involvement charge per unit of measurement "r," that is, the policy rate, too the increment charge per unit of measurement "g" measured equally modify inward GDP.

This is the ratio of r to g, or "r : g". As long equally r is greater than g, "they" watch the increasing involvement affordable. In fact, "r > g" has croak a meme too entered the jargon since the publication of Thomas Piketty's Capital inward the Twenty–First Century.

While MMT regards this ratio is irrelevant to affordability for a currency sovereign, MMT economists also signal out that that it is nether the command of the key banking concern equally the monetary policy say-so that sets "r" equally the policy rate. The key banking concern tin laid upward the policy charge per unit of measurement where it chooses relative to its mandate of growth, utilisation too toll stability ("inflation"), although toll stability unremarkably predominate, since key banks tend to target an inflation charge per unit of measurement too purpose utilisation charge per unit of measurement equally a tool nether NAIRU.

There are no bond vigilantes that command involvement rates inward a currency zone where the authorities is sovereign inward its currency too does non undertake obligations inward price where it is non sovereign too thence could larn squeezed.

So from the MMT perspective, concern over the affordability of the national debt is a canard that distracts from the issues that are genuinely of import for policy. Neither financial payments past times the Treasury nor monetary payments similar involvement on excess reserves are constraints on the authorities to spend. According to MMT, the existent constraint is availability of existent resources too the nominal constraint is inflation. "Affordability" is non an upshot for a currency sovereign equally the monopoly issuer of its currency equally the unit of measurement of work organisation human relationship inward the currency zone.

The classic MMT newspaper on this upshot is "Interest Rates too Fiscal Sustainability" by Scott T. Fullwiler (2006).

FRED Blog
How expensive is it to service the national debt? : Influenza A virus subtype H5N1 battle betwixt involvement rates too increment rates