We tell ourselves stories about creating money that mostly miss the point. what matters is what it is spent on. If it is lent out at interest, it will pay back at least twice. If put out on building railways and infrastructure it will all be earning a century later. If put out to support the poor ,they will prosper and earn.
$4000 in 1970 educated a young man. That man earned a high middle class income and paid huge taxes. Just where was the risk to the government?
The threat is not money but population contraction.
For 30 years, Japan ran an experiment and we watched with fascination.
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Its government borrowed more than twice its GDP. The reckoning economists persistently predicted never arrived. Rates fell towards zero, debt kept growing and nothing broke.
Japan became the great exception: proof that a wealthy country could owe almost any amount of debt, provided money remained cheap.
From 2016, the Bank of Japan used its bond purchases to hold the 10-year rate near zero. It loosened the policy in 2022 and ended it in 2024. You can see that in the chart below.
So for years, Japan could replace maturing debt with new bonds that cost almost nothing. That is now changing. New 10-year borrowing costs around 3%. Other maturities carry different rates, but as old debt is replaced, Japan’s interest bill rises.
Japan shows that exceptionalism can last for decades without being permanent. American exceptionalism has not ended. The world still treats US debt as the safest place to put its money. But Washington already spends more than $1 trillion a year on interest. If investors demand higher yields, for whatever reason, the bill will rise every time old debt is refinanced.
One trillion dollars is not the worst case. It is the starting point. What are your thoughts.
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