Budget-makers need not cower before the bond-market vigilantes. In fact, they need not bother with bond markets at all.
1. A sovereign government is never revenue constrained because it is the monopoly issuer of the currency.
2. Tax revenue is not used to fund government spending. Governments tax for a number of reasons, which include creating a demand for its currency buy forcing the non-government sector to offer goods and services for sale in order to get access to that currency so that it can relinquish its tax obligations.
3. A sovereign government can always meet any of its liabilities which are denominated in its own currency.
4. A sovereign government does not have to issue debt in order to spend. In fact, governments just borrow back prior deficit spending. A government can always deficit spend without matching that net spending with debt-issi
5. A sovereign government is clearly able to spend freely to restore employment. It can always purchase any idle resources that are for sale in the currency that the government issues.
6. The government via its central bank sets the interest rate and can control interest rates along any segment of the maturity curve should it desire to do so. Bond markets do not have power over a sovereign government.
7. A corollary is that foreigners can never fund government spending. China investors do not issue the Swedish krona!
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