Debt Cancellation - the effects

[Blue3]

Let's say

1. the U.S. government bought all the debt of developing countries worldwide, and most other other countries too, state/local government debts, and most major MNCs' debts
2. the U.S. government did a massive stimulus that paid-off all student loans, medical debt, mortgages, person credit card debt, small business debt, and did a massive infrastructure upgrade for the nation and new Marshall plan for countries around the world (and capped future interest rates, expanded and renovated affordable housing, expanded social security, made college/healthcare public-funded, more national support for preK-12 funding and unemployment insurance and paid leave and childcare, hiked minimum wage to a living wage and tied it to inflation, a large rainy-day emergency fund for any future potential financial crash, all in a fiscally-sustainable way for the US government budget and basically balancing the budget)
3. the Federal Reserve was the borrower for the above stimulus, and buys up all other remaining U.S. government debt from China, Japan, UK, etc.
4. the U.S. cancelled all debt it held (of developing countries worldwide, most debt of most other countries, most major MNC debt) and later that day is followed by the Federal Reserve cancelling all debt of the U.S. government. Having barely a balanced-budget before, even with the expanded economic programs through progressive taxation, with no debt it means no interest payments and a large budget surplus. The U.S. government begins to build its savings account. Individuals and businesses across the U.S. are freed of debt and can now manage any new low-interest debt with a fresh start, and developing countries are finally free from their own debt around the world.


What are the economic effects in the first month?

In 5 years?

In 10 years?

In 50 years?

[Blue3]

No thoughts?

[True Federalist (진정한 연방 주의자)]

Why bother thinking about something that'll never happen?

Student debt cancellation is only plausible because the Federal government is already on the hook for it as the ultimate guarantor. It is entirely ridiculous that the Federal government would ever buy up debt it had no existing relationship with.

[Blue3]

Why bother thinking about something that'll never happen?

Student debt cancellation is only plausible because the Federal government is already on the hook for it as the ultimate guarantor. It is entirely ridiculous that the Federal government would ever buy up debt it had no existing relationship with.

That's just one piece of what I wrote.
And I'm asking what the economic effects would be of the whole sequence I described.

[True Federalist (진정한 연방 주의자)]

Why bother thinking about something that'll never happen?

Student debt cancellation is only plausible because the Federal government is already on the hook for it as the ultimate guarantor. It is entirely ridiculous that the Federal government would ever buy up debt it had no existing relationship with.

That's just one piece of what I wrote.
And I'm asking what the economic effects would be of the whole sequence I described.

Treating economic effects in isolation of political effects is ludicrous when you are asking about a political decision. No government is going to implement a policy of acquiring any form of debt just to cancel it without having some plan in place to prevent the recreation of that debt after the cancellation. Since there's no way to prevent other countries from issuing no debt, the idea of a general acquisition of foreign debt is an impossibility.

What the government can politically do is engage in a cancellation of government guaranteed debts as part of a program to get out of guaranteeing such debts in the future, in which case, the interest rates on such debts will rise, fewer people will acquire such debts, and the related industries such as education, home building, etc. will suffer.

[Blue3]

I'm not asking if it will happen, I'm asking what the effects would be. I don't care how likely the hypothetical is. And it's about more than just foreign debt or consumer debt, it's also cancelling US federal debt after a large investment and balancing the budget.

[SevenEleven]

Sounds like an instant long-term depression to me, destabilizing an already unstable global economy.

[Cassius]

If the United States Government did as you’re proposing, the immediate effect would likely be a precipitous drop in the value of the dollar, as a truly mind boggling quantity of currency would need to be created to buy up the debts of every other world government and most multi national corporations. That would threaten the role of the dollar as the world’s reserve currency, as would the implications of cancelling all US government debt (do the bondholders get reimbursed with the principal and outstanding interest? Or is the debt simply repudiated?). Cancelling all US government debt would also remove a key and fundamentally safe asset that’s in the portfolio of nearly all major individuals and institutions that invest (including insurance companies, pension funds, mutuals etc), which would have immediate and probably negative ramifications for them (what becomes the new safe haven asset? There’s gold, but that doesn’t produce a monthly return and is pretty expensive and inconvenient to hold).

Finally, this proposal, in all likelihood, would make institutions and individuals more inclined to take on debt, as the precedent of all debt in the entire world effectively being backstopped by the Federal Reserve would be there. That would probably lead to a fundamental re-evaluation of what ‘debt’ and ‘indebtedness’ mean in reality and a complete change in how human society operates.