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openpgp4fpr:E0C3497126B72CA47975FC322953BB8C16043B43
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Cake day: October 7th, 2024

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  • Paying off the US debt would mean paying back existing bondholders without issuing new bonds. After all existing bonds have been paid back, there would not be any US bonds in circulation, and the US bond market would be no more.

    US bonds are the backbone of the global financial system. If they were to disappear overnight, it would be a financial apocalypse. On a larger timeframe, I suppose the global financial system could readjust, but I can only speculate as to how it would do so and what consequences would follow.

    In any case, paying off its debt would be detrimental to the US, because global demand for its bonds results in higher bond prices and thus lower bond yields. In other words, the US pays less interest than it otherwise would because its bonds are so sought after. By paying off its debt, the US would not pay any interest whatsoever, but it would lose a great deal of power abroad.