Debt is bad. Right? Yet debt is intrinsic to our economic system. Everyone, it seems, is in debt. More money is created by commercial banks loaning money or guaranteeing lines of credit than by the central banks which print the currency. Debt makes the world go 'round.
Still, nobody likes to be in debt. We spend much of our lives paying off student loans, then the mortgage, the second mortgage, car loans... From a personal point of view, debt is bad. Governments, too, struggle to balance their budgets and reduce the national debt. Yet what is often bad for the individual is good for society, and vice-versa. For example, if I wreck my car, I have to pay the deductible and subsequent higher insurance premiums. Which is not good for me. But it means employment for a tow truck driver, mechanic, insurance adjuster, car salesman (when I buy a new car), autoworkers, etc. Not to mention paramedics, nurses, doctors and flower sellers if I'm injured. My car accident might actually be good for the economy! In the same way, while it will certainly benefit the government and taxpayers to eliminate the national debt, whether the economy will benefit is less certain.
The problem is, only one side of the equation is being examined. What about the lenders? If there were no national debt, where would the investors who put more than $20 trillion into the national debts of the world's 194 countries put their money? If they put it into the New York Stock Exchange, for example (current valuation: 14 trillion), stock prices would more than double, creating a massive bubble. Where else could they invest? Gold? There's less than $10 trillion worth of gold in the world, at the current near-record-high price. The fact is, wherever this bonanza of cash flowed: natural resources, land, F.D.I.- there would be a massive speculative bubble.
How would that affect interest rates? (lower, I assume) Inflation? (skyrocketing) These are questions- theoretical in the foreseeable future- that economists should consider. I have little sympathy for the billionaire investors or multinational financial institutions who have bought government bonds. I'm very much in favour of eliminating all government debt (especially in my home country, Canada). But we should be prepared, if we do so, for the financial tsunami if trillions of dollars, euros, yen and rubles are suddenly shifted out of government bonds and into other markets. So far, I have heard no discussion among economists on this issue.