Why the U.S. Government Never, Ever Has to Pay Back All Its Debt by Matt O'Brien

...Here's the budget math. Between 1946 and 1974, debt-to-GDP fell from 121 to 32 percent, even though the government only ran surpluses in eight of those years (and the surpluses were generally much smaller than the deficits). That's because nominal GDP -- just the cash size of the economy -- grew much faster than debt did. As Greg Ip of The Economist points out, fast nominal GDP growth, and the easy monetary policy that requires, is the only way governments have ever successfully reduced debt ratios in the past. Austerity alone will fail. (See Europe).

...Well, as Mike Konczal of the Roosevelt Institute points out, the oft-cited Rogoff-Reinhart 90 percent debt-to-GDP threshold, after which growth supposedly slows, hasn't been proven. It's just a correlation. If anything, it probably gets the causation backwards, with low growth driving deficits and debt, not vice versa. Now, high deficits during high growth could crowd out private investment, and raise interest rates -- the fabled bond vigilantes -- but it couldn't bankrupt us a là Greece. We borrow in a currency we control, so we can never run out of it; we can always inflate as a last resort. This money-printing escape hatch protects us from the kind of self-fulfilling run -- where markets push up borrowing costs on fear of default, which, perversely, makes default more likely -- that had plagued Europe before ECB chief Mario Draghi promised to do "whatever it takes" to save the euro. The worst we have to fear is some kind of replay of 1992, with rising interest payments forcing some combination of tax hikes and/or spending cuts. There's a little bit more to fear than fear itself, but not too much more. 

That leaves us with one last reason to worry, and one not to. Long-term healthcare spending is on an unsustainable trajectory ... but there are some signs it might already be slowing to more sustainable levels. That's the worry. The reason not to is the world's insatiable appetite for our debt. Treasury bonds are a kind of money for the financial system -- shadow banks in particular use them as collateral to fund day-to-day operations -- and they're a kind of money the financial system desperately needs more of now. This brave, new financial world was in embryonic form just 30 years ago, but is so developed today that demand for our debt is much less elastic than you might think. 

In other words, don't think of the children. The government should keep borrowing today, and tomorrow, and every day after that. Being a government means you can borrow forever.