Governments do indeed face the household limitation on debt
From The Guardian (of all places):
The modern debasement trade involves investors moving away from fiat currencies, such as the dollar, in favour of “harder” assets that provide safety from the risk of rampant inflation.
The trade – a hot topic in the markets this month – is being driven by anxiety that governments will not, or cannot, rein in their borrowing by cutting spending and raising taxes. The concern is that politicians may take control of their central banks, allowing them to run persistently high deficits and prioritise debt financing over price stability.
We can translate this, as we have done, into the household analogy. Sure a government can keep issuing debt. Or even just stop doing that and flat out print money. But the more debt there is the less each piece of it is worth. The more money there is the less each piece is worth. For the people doing the valuing of the debt, of the money, are us out here. And, as has killed many an economic scheme, we value things our way not by some just and righteous standard that people would like to impose upon us.
Which is why that old description - the monetisation of fiscal policy - really does apply to Modern Monetary Theory.
Debasement is the act of reducing the quality or value of something. Henry VIII was behind one of the most notorious examples in history: the “great debasement” saw the amount of gold and silver in coins substituted with cheaper base metals such as copper to fund his lavish lifestyle as well as wars with France and Scotland. It earned him the nickname Old Coppernose when silver started to wear off the coins featuring his face.
Most of the reign of Elizabeth I - the economic policy at least, including the capture of Spanish silver galleons etc - can be described as an attempt to reverse that debasement. OK, it would be a fairly narrow view of that time period but it is one that works.
We agree entirely with MMT in the sense that government can just keep printing money to spend. We’d only then go on to point out that as they do so each piece of money becomes worth less and less until it’s worth nothing. Or, as reputedly happened to the Zimbabwe 100 trillion $ bill, worth less than the cost of the ink for the next print run. That is, governments face exactly the same spending limitation as households - both can keep borrowing, promising, printing, until no one at all believes in the value of the promises. At which point the game, as with history, comes to a .
Tim Worstall