I am under the impression that the economy of a country which can pay its debt in the currency it controls is radically different from household economies.
I can imagine a few vague reasons why one situation could be radically different from the other.
What is a better way of explaining/understanding the economic situation of a country like the US which can pay its debts in its own currency?
The main reason a country’s finances (even one that doesn’t borrow in its own currency) is different from personal finances is that a person eventually has to stop working due to old age (death, but preferably retirement), so if a person is in debt, he or she wants to get that debt paid off before it becomes impossible to do.
A country is never going to retire, so maintaining a certain debt level indefinitely is entirely feasible. Practically, some creditors will have to be paid off, but if there are new creditors willing to lend, rolling over the debt is a perfectly valid thing to do. Of course it is a bad thing if creditors lose faith in a country and when debt comes due, there is no new creditor to roll it over to, but for countries that’s a possible bad thing that might happen, while for a human trying the same thing, that is something that will certainly eventually happen.
For countries that borrow in their own currency, the country has the additional ability to just create new money to pay off the debt. There are reasons why this is a bad idea in a lot of cases, but it is basically a guarantee that the debt will be paid off in some form.
Paying debt by printing money is functionally identical to a tax on those who hold currency denominated in your country.
Claiming that a country can last forever is a controversial statement and not an objective fact; some would disagree with you. And if a country can last forever, there’s no reason a household can’t keep rolling over debt perpetually, too.
Except that it is much easier to implement, and harder to avoid than a tax. 
We could say that no country plans for its own expiry, and when that happens creditors are just as fucked as they would be as creditors of and individual who died without assets. But people certainly invest as if countries like the United States and Britain will certainly exist beyond the investment horizons they are concerned about. It would be a real surprise if any investor lost money because of the dissolution of the United States before 2050 at least.
A household could be set up in such a way that there is a pool of “family wealth” and “family debt” which supports/is financed by the members of the household, and then household finance would be more like a country’s finance and could persist throughout the generations. Most households are not set up like this, though – individuals save for their own retirement, and while wealth may be passed down to the next generation though inheritance, debt seldom is.
Governments are sovereign. They can’t be repossessed or foreclosed like your house or car. Households can’t issue their own currency or tax their neighbors (unless they’re running a racket). They can’t manage the economy to grow out of their debts with more spending.
Households try to get zero debt. Governments don’t try to get zero debt, nor would it be desirable. All kinds of groups need government bonds.
Everyone is happy with government debt service as long as they pay off a chunk of the interest into perpetuity. You can’t do this. Not just because you die, but because a person’s economic value tends to decrease over time. In theory, a well run government’s potential value is always increasing. Governments also tend to get much sweeter deals than an individual can and the penalties take longer to occur than if you stop paying your credit card bills.
I don’t think that’s quite right. It’s a tax on those who hold currency and those who hold debt.
Pretty nice to able to tax the people you owe money to in order to pay them back…
I think the best analogy is this:
There’s a guy, let’s call him Sam. Sam is so popular, that he can just go out and make people give him money using his Jedi mind control powers. So, Sam never has to worry about his income.
But, if Sam’s income is too low, he can always go out and try to borrow it. Sam has a super-duper credit rating, so everyone is falling over themselves to lend him money.
But, even if nobody wants to lend him money, Sam has his own personal bank. He can just go to his personal bank and ask them to lend him money, and they’ll happily do that. And on top of that, they’ll give Sam pretty good terms on his loan.
Sam has it set.
Unfortunately, Sam has a crazy uncle who lives in the attic. And the crazy uncle wants to make Sam default on his debts, even though Sam doesn’t have to. Kick your crazy uncle out of the attic, Sam!
Right, but that tax is factored in when people decide what interest rate they’ll buy bonds at, governments expected to devalue their currency see their nominal rates on bonds go up. Existing bonds are obviously going to suffer, but that’s why a lot of sovereign countries have trouble borrowing in their own currency, and have to issue them in a currency that is more reputable.
A sovereign country can pay off all of the bonds that come due with newly printed money, without rolling them over, but they kind of get stuck doing that because rolling them over stops being a reasonable option pretty quickly. If, for instance, the US Congress and Fed both felt it was vital, they could stop selling bonds to anyone except the federal reserve, wait until all the privately or foreign held debt matured, and then have the Fed just ‘forgive’ the bonds they hold (although that actually wouldn’t mean a damn thing). Bam, no debt. But that seems like it would be an incredibly risky experiment with inflation, and I don’t know if there is a parrallel in terms of a sovereign nation trying something of the sort without some other catastrophe prompting it.
From Burns and Allen (radio show):
Gracie: My daddy was always good to us kids. If I spent my allowance and asked for some more money, he’d always just run right down to the basement and print me up some.
It’s hard to come up with a metaphor that compares household debt to national debt in regards to currency because a household is by definition small and a nation is by definition large.
In very simple terms, I would fall back on the old supply and demand curve because money can be thought of as a commodity with supply and demand factors. If you flood the market with any commodity, it saturates demand and becomes less valuable. Normally we think of commodities like wheat and labor flooding the market and being worth less in dollars, but you can also think of dollars flooding the market and being worth less in wheat and labor.
The people who are hurt by this are those holding dollars - that is, mainly lenders and savers. Both of these people can try to minimize their losses through flexible rates. For example, credit card loans have a variable rate; if dollars flood the market, they’ll just charge 50% or 100% interest to keep their earnings the same. Likewise, savers can move money around and demand higher interest earnings. However, some people cannot play this game, such as lenders on fixed-rate 30-year mortgages, savers who are literally holding cash, or savers who are locked into fixed-rate savings, like 10 year Treasuries.
Now, money supply is a lot more complicated than this, but I think supply and demand is a good example from a metaphorical.
Going back to households, even Bill Gates has a tiny amount of money compared to the entire economy - his best effort to flood the market with cash would be a drop in the bucket. If you look at the California gold rush, you can get a taste of how this might work in a localized non-government sense. Prospectors had lots of gold and very little food. In response, the local price of eggs went up ten times.