[RockIslandLine]

"Right now, 8% of Federal Revenue pays just the interest on that debt. If interest rates go up, say in a year or two.. so goes up that payment."

Canada has a fiat currency. Thus the Canadian government can set the interest rate on federal debt to zero.

http://multiplier-effect.org/modern-money-theory-how-i-came-...

Permanent ZIRP (zero interest rate policy) is probably a better policy since it reduces the compounding of debt and the tendency for the rentier class to take over more of the economy

[b112]

OK, read. I still don't see anything but, well, a lot of "this should" and "here's why". Maybe I'm missing something, but where is the for-profit motive for banks to lend, for absolutely no return?

Further, where is the pressure to pay back debt, if there is no interest. When not just run up the debt forever? Just use the banks to create more and more cash, forever? And who cares about the effect on other parts of the economy.

What bothers me with things like this, is they are all band-aids. And not even thought out, as far as I can tell, with how the rest of the economy is going to have to function. To change. To be modified, to fit the new.

I'm OK with change. I don't mind a new system. I see the coming issues with increased automation, agree something will have to be done, but just slapping a patch here and there isn't feasible at times.

You have to remodel the whole, to fit the new.

All I can see here, is "let's just change this", and "who cares what happens elsewhere".

Yet, why would I, as a banker, lend to the government at all? For no profit? And with no ability to force repayment, and no pressure on the government (interest payments) to repay, or even stop borrowing more?

[RockIslandLine]

"Maybe I'm missing something, but where is the for-profit motive for banks to lend, for absolutely no return?"

You're definitely missing something, because private lenders are perfectly free to charge interest. ZIRP applies only to federal debt.

"Yet, why would I, as a banker, lend to the government at all?"

Currency issuers never need to borrow. That is an incorrect statement of why Federal debt exists. Federal debt is a savings instrument, and as Europe and other negative interest rate debt has shown, there is still a market for savings instruments even at the zero lower bound.

https://www.bloomberg.com/news/articles/2019-08-15/negative-...

"Negative-Yielding Debt Hits Record $16 Trillion on Curve Fright"

[b112]

"You're definitely missing something, because private lenders are perfectly free to charge interest. ZIRP applies only to federal debt."

As I understand it, the Canadian Federal debt is held through a variety of instruments, quite a lot of it domestically. EG, Royal Bank, TD Bank, etc.

Whether it is bonds, or some other instrument, they all pay interest. That debt exists, is owed, and yet you're saying "Just don't pay that interest"?

I don't think that's what you mean. I think you're being somewhat terse in your responses here.

For example, maybe you mean "As time passes, and new debt replaces the old". Or, "Stop issuing debit in way $x, and instead, do it in way $y".

Yet the GoC surely does not pay interest for zero reason, or cause. Clearly, there is some reason for using these instruments, such as, getting lenders to ... lend.

If you are advocating an entire policy shift, with massive ramifications to the overall method in which the GoC raises, and treats debt ; OK.. fine. Yet entire economic model shifts aren't easily conveyed by the terseness I'm seeing here.

And the articles you are pointing to, aren't really helpful, nor describe precisely what shift-in-thought you're referring to.

[RockIslandLine]

"Whether it is bonds, or some other instrument, they all pay interest. That debt exists, is owed, and yet you're saying "Just don't pay that interest"?"

I'm saying it's wrong to create federal bonds with an interest rate that is far different from zero.

The rules are different between currency issuers (nations with a fiat currency) and currency users (citizens, municipalities, provinces, nations on the gold standard).

Currency issuers have a unique ability to guarantee that you will hold an exact amount of the currency on a given date. No currency user can make that guarantee.

Because currency issuers can guarantee repayment on debt in their own currency, the repayment risk on the debt is strictly and exactly zero. Thus the interest rate on that debt should always be very close to zero if not exactly zero.

The fact that Canadian government debt pays high interest rates merely tells you that the government did things wrong in the past.

[b112]

Just saw this. Thanks for clarity/responding on your point.

Two things.

First? Interest also represents the reduction in value of the currency unit, over a period of time.

I keep a few thousand hidden around the house. In case of need. Yet, each year... even with 4%, 2%, whatever inflation, that $3000 is worth less. It has less value.

Interest exists for three reasons. Risk, as you talk about above, but also as profit for being nice enough to lend capital, and lastly to combat inflation.

Why would people park their money, and lose both value in that money due to inflationary pressures, AND, make 0% on that capital when they could literally park it many other places and make even double digits?

It seems odd to me, that you completely ignore the for-profit motive in money lending, and the inflation issues in lending. As if they simply do not exist. Even in down markets, historical a wise lender (like a massive bank, which tends to lend to a federal level goverment) makes more by parking that capital elsewhere.

In terms of the Canadian Government paying 'high interest rates', I merely stated that it pays 'market interest rates'.