Karl Smith!

Government borrowing changes the game... because the government is... always a good credit risk. Indeed, in a world where reserves are swapped for government bonds [because the government can always print reserves] the government can’t not be a good credit risk. Thus a rise in government borrowing suddenly makes overall lending safer and the BL curve moves out. Governments which may directly default (rather than inflate) lose traction.... It is not at all clear that Greece can move the BL curve... Brad quoting Karl Smith

Folks, it is great to borrow from DC as long as DC can guarantee lower interest rates in the future. This is a safe asset, a government bond guaranteed, by our government, to rise in value above is current NPV. This is the negative growth trade, Karl, it has worked for 30 years, as we can see by the steady drop in yields since 1980. Unfortunately, rates have dropped to Zero, right at the same time we hit approximately zero growth, and been there for five years. We ran out of middle class to guarantee bond traders a sure thing. As we all know, the decline of the middle class correlates with deficit spending, been doing that for thirty years. The government credit risk is just fine, denominated in dollars, but at some point, the middle class chooses another currency, or begins to barter, or government goes into hyperinflation then restructures. We are at zero, if DC wants a negative growth rate, is has no more middle class to pay for it.