Comment by mywittyname

> What are the flaws in this thinking?

That the national debt matters.

A) The Fed & Treasury have the ability to buy back the securities at any time if they wanted, since they can basically poof the currency into existence. And t-bonds are as good as cash anyways, so that money is basically already in the economy.

B) The country's national debt is also our citizens' savings accounts. Every major company in the country (and the gov't itself) holds an absurd amount of t-bonds because its the best place to store billions of dollars for safe keeping. Paying off the debt means this capital needs to go somewhere. Should it go to China? The EU? Canada? American real estate?

The national debt is probably the most misunderstood concept in the country. It's denominated in USD, unlike other countries, whose debt is borrowed in currencies they don't control. And "paying off" the national debt risks capital flight and/or asset bubbles - both of which are detrimental to the economy.

The system we have in place is a good one.

Thought experiment: consider what would happen if the US Treasury decided interest rates are negative. That is, you pay $10,000 for a bond and receive back $9,900 after 10 years. What do you think this would do to the economy?

Now ratchet up that negative rate to 100%, that is, you pay $10k for a t-bond and eventually it's worth $0 after 10 years. That's pretty much what paying off the national debt would do (in fact, that's probably how the national debt would be paid off, if ordered to do so, the fed would purchase these bonds and the treasury would use the proceeds to buy existing bonds off the open market). It's two sides to the same coin, but instead of prohibiting the purchase of t-bonds, you just disincentivize it.