From Interfluidity:
Governments are special. Their core asset is their taxing power. Their liabilities, whether notionally bonds or money, are best understood as preferred equity rather than debt.
Sunday, April 17, 2011
Money is equity
From Interfluidity:
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From Is the U.S. budget deficit sustainable?
at Macromania:
"For countries that issue debt representing claims to their own currency and permit their currency to float in foreign exchange markets, attaching the label "debt" to these objects--like U.S. Treasury securities--is somewhat misleading. The better analog in this case is equity. Companies that finance acquisitions or expenditure through equity do not have to worry about bankruptcy. They may have to worry about diluting the value of existing shareholders if they over-issue equity, or use it to finance negative NPV projects. The same is true of the U.S. federal government (but not state or local governments). The risk of over-issuing treasury debt is not default--it is share dilution (i.e., inflation)."
See also Debt and Equity: "... To summarize: physical paper money is equity. Bank deposit money is backed by debt...."
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