Why can't the government buy its own debts and cancel them?
Why can't the government buy its own debts and cancel them?
Or does the government already do this? If so, can anyone explain like I'm five?
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According to MMT (Modern Monetary Theory) governments sell debt in the form of bonds in order to create a stable store of value for investors. They feel safer making risky investments if they know that some if their money is safe. Governments, particularly governments with fiat [1] currencies, are extremely safe borrowers. You can more or less guarantee that their bonds will be paid back. Because if a government wants to pay that bond back they are incapable of running out of money. So governments could buy their bonds back and forgive them but it would defeat their actual purpose. I read about MMT in The Deficit Myth. It's an interesting book and worth the read if you want a different perspective on monetary theory.
- Fiat in this case means the currency is not based on any asset. Common currency basing assets are gold, silver, petroleum, and cryptography.
I don’t really think it’s fair to compare silver or petroleum to crypto. I can run a car on petrol and make self sterilizing utensils with silver, can’t encrypt my emails with crypto currency.
I get that it is about there being a limited supply but that doesn’t really stand considering fractional reserve banking can be done with those others but not really with crypto.
Not disagreeing with you, just kinda thinking out loud, (thinking out written? IDK.)
Nowadays (post-gold standard) crypto is more similar to gold than to fiat; you can't eat either, but the value of crypto and gold comes from whatever people freely want to pay for them, unlike fiat's value which gets enforced through taxes and armies.
Gold is also fungible, and doesn't get consumed during normal use, just like most popular crypto projects (although some are neither, and explicitly "burning" crypto makes it unrecoverable).
fractional reserve banking can be done with those others but not really with crypto.
You'd think that... but crypto ETFs say otherwise. You can also look into Sam Bankman-Fried, an extreme case of "fractional reserve" (aka: scam).
General rule: not your keys, not your crypto... and you better have the holder of "not your crypto" thoroughly audited on a regular basis.
Gold value was also enforced by armies and taxes. It has uses nowadays that it did not use to have. Used to be gold was only useful as a decoration or as a coating that wouldn’t tarnish. The actual value was that you had to pay taxes in it.
Crypto has no value, less value than fiat even, because I can’t buy groceries with it, nor can I pay taxes with it.
Also, you can’t fractional reserve crypto unless you’re using a second crypto currency backed by a first.
Gold value was also enforced by armies and taxes
The history of gold, and other metals like silver or copper, is quite interesting. They started by having an intrinsic value, then some governments tried diluting it, failed and they went back to intrinsic, then finally the Venetians managed to apply inflation to it, ultimately the gold standard was abandoned by the US in the 1970s... and anyone trying to reinstate it (Saddam, Gaddafi) got on the wrong side of US's army.
Crypto has no value
It has the value of whatever people assign to it. You definitely can find places to buy groceries with it, or anything else; there are even credit cards in crypto that will convert to whatever the seller wants.
you can’t fractional reserve crypto unless you’re using a second crypto currency backed by a first
Or an ETF. There are plenty of banks offering to "sell you crypto"... except you can't transfer that "crypto" out of the bank. There is no way to know whether they even have any of it.