I think this concept gets to the heart of the 'How much government debt is too much' debate. Government owns the fiat banker, so what. The problem is within the government in DC and its ability to manage affairs when the price of debt goes up faster than income within its budget. Delong would say, so what, since government will have medium and long term multipliers greater than one, let the debt pile up today, and return value tomorrow for a gain.
Whatever the future multipliers might be, the interest cost as a percentage budget will be a random walk up a steep incline. The agglomeration function wants the incline removed before a five year bet is made. That is, the bond market knows about it, it needs to be priced in today. There in lies the missing piece, government failure to account for a known five year trend, the steep interest expense climb. It is precisely there that normative differences appear, the portfolio norm always tries to quantify the bounded trend. High accumulated debt robs Congress of portoflio choices and makes for bankruptcy.
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