Just had a quick question. I have often heard that a high debt-GDP ratio is not so much of a concern for countries who owe the money to their own citizens. Is this only because the government can easily just print money and pay off these debts? Is the only associated cost high inflation and perhaps loss of credibility going forward?
On the face of it the hypothesis is correct, however, the luxury of being able to print your own money is not (at least in my thinking) infinite. Whilst inflation is an outcome, there are other problems that come with this eg. crowding out private investment due to huge government issuance (dampening growth), underdeveloped corporate bond markets (high borrowing costs) and high current account deficits especially if you are a net importer.
Neither are good of course. I think the point is that satisfying debts by seigniorage is preferable to an outright default, this is because in a deflationary situation, even monetary easing doesn’t really raise the inflation rate that much.