According to “Musgrave’s Law” (scroll down the column
to the right of the one you’re reading right now) the answer is “yes”: it can
be done by simply continuing with QE. That is, debt is replaced with monetary
base. And as to any excessive inflationary effects, that can be dealt with by
increased taxes (not that any increased tax seems to have been necessary as a result
of QE to date).
However Peter
Martin pointed out to me recently that the above is a questionable argument
in that monetary base itself is a debt of sorts. That is, it is a liability of
the government / central bank machine (gcbm). Indeed the same point applies to
the money issued by a commercial bank: that money is a liability of the bank.
Moreover, government debt (for a monetarily sovereign
country) is nothing more than a promise by government to pay the debt holder
some monetary base at some point in the future. And for debt which is near
maturity, the different between debt and base is near meaningless. That is, the
two merge into each other.
Nevertheless, there are some differences between debt
and base, as follows.
First, interest is paid on debt, whereas little or no
interest is normally paid on base.
Second, while debt can be used in lieu of money in the
world’s financial centres, debt is no use for about 95% of transactions: e.g.
buying groceries, cars or houses. In contrast, money obviously is of use for
buying groceries, cars, houses, etc.
Another point is that the purpose of “Musgrave’s law”
is to undermine those who get hysterical about the allegedly huge and ever
rising interest bill that has to be paid on the national debt. And if debt is
converted to base, that solves the (non-existent) interest problem. I say
“non-existent” because the REAL or INFLATION ADJUSTED rate of interest on the
debt of responsible countries is currently around zero or even negative. In
short, Musgrave’s law is partially psychological warfare aimed at those
hysterics.
Another psychological point is that (as others have
made clear) concerns about the National Debt arise largely because the minds of
simpletons (like Kenneth Rogoff, Carmen Reinhart, Niall Ferguson, etc) are
clearly governed by the overtones or innuendo behind the word “debt”. And those
overtones are negative (“bankruptcy”, “bailiffs”, etc). That is, the simpletons
can’t work out the ACTUAL NATURE of that so called debt.
So to keep them happy, why not get rid of the debt or
at least explain to them that the debt is easily disposed of?
So to be strictly accurate, I should amend Musgrave’s
law, to take account of Peter’s point, but for reasons given above, I think
I’ll leave it as it stands because I gain brevity at the expense of accuracy.
And finally, if you think that turning the entire
national debt into monetary base is an extreme idea, then bear in mind that
Milton Friedman and Warren Mosler advocated a system under which the only
liability issued by the government / central bank machine is money (monetary
base to be exact). I.e. those two individuals advocated a system where
government issues no interest yielding debt. And apart form the arguments put
by Friedman and Mosler, I recently set out some arguments
for a “no government borrowing” regime.
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