Rising Interest Rates Is A Good Thing For Governments —— Brian Romanchuk

Worries about the effects of rising interest rates on government finances is a standard feature of editorial pieces. However, a floating currency sovereign should not be analysed in the same way as a household or business. An individual should reasonably worry about the effect of rising interest rates on their finances; if they face financial failure, the side-effects are not enough to affect macro outcomes. This is not the case for a central government: interest rates reflect macro outcomes, and the analysis needs to take into account why interest rates are rising.

A recent article by a Canadian journalist motivated this discussion. Although Ken Boessenkool's article "Money's not for nothing" has some obvious weaknesses, it has the advantage of laying out clear logic. Most pro-austerity arguments rely on vague, unquantifiable threats. The concerns are fairly standard: the Canadian Federal Government should fear rising interest rates, in the same way that a household would.

Bond Economics
Rising Interest Rates Is A Good Thing For Governments
Brian Romanchuk