5 ms·

What makes you think that the debt has to be bought?

vonmoltke 8y ago
Government debt, much like large corporate debt, almost always takes the form of bond issues. By definition, to raise debt capital via a bond issue someone needs to buy those bonds. Buying bonds is buying debt. Thus, governments cannot raise money through debt issues if people are unwilling to buy the debt.
- frogpelt 8y ago
  Exactly. And this is why credit ratings matter. Because for people to buy the bonds the credit rating needs to be high to keep the yield (interest) low. If a country receives a less-than-stellar credit rating, the only way they can entice people to buy their bonds is by offering higher yield (interest rate) which means they have to pay back more.
  - RobertoG 8y ago
    In July 2012 the credit rating for many Euro countries was low and the borrowing costs very high. Mario Draghi, the President of the Central European Bank (who can emit so many Euros as they wish with typing something in a computer) made a statement (1) that he will defend the Euro. The next day the debt problem was solved. 'The markets' know that governments that emit debt in their own currency, are not depending of ratings or people buying bonds because they control the currency. The European case is complicated because the Euro is kind of a foreign currency for the Euroarea, but the China case is obvious. (1). https://www.telegraph.co.uk/finance/financialcrisis/9428894/Debt-crisis-Mario-Draghi-pledges-to-do-whatever-it-takes-to-save-euro.html https://www.telegraph.co.uk/finance/financialcrisis/9428894/...
- endorphone 8y ago
  Over half of US debt is held by Federal retirement funds -- e.g. Social Security. So you put that money away for your retirement, and that retirement fund automatically buys close to no return t-bills. It's all really a giant pyramid scheme, and is only tenable with unsustainable population growth. The US can run an enormous deficit for as long as they can convince the population that their retirement funds should pay for today. Savings bonds end up being the poster child of the debt, but less than 1% of the debt is actually bonds like that.
  - seanmcdirmid 8y ago
    It’s more like the other way around: the USA must run large deficits so that massive retirement savings have somewhere to go. Money can’t be saved without being lent. The only question is whether retirement savings are better invested with the us government or more privately like in a 401K (this is what Bush 43 wanted to do with his SS reform). Supply is just as important as demand when looking at debt.
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ChrisLomont 8y ago
You cannot get debt without a lender.

Government debt, much like large corporate debt, almost always takes the form of bond issues. By definition, to raise debt capital via a bond issue someone needs to buy those bonds. Buying bonds is buying debt. Thus, governments cannot raise money through debt issues if people are unwilling to buy the debt.

frogpelt 8y ago
Exactly. And this is why credit ratings matter. Because for people to buy the bonds the credit rating needs to be high to keep the yield (interest) low. If a country receives a less-than-stellar credit rating, the only way they can entice people to buy their bonds is by offering higher yield (interest rate) which means they have to pay back more.
- RobertoG 8y ago
  In July 2012 the credit rating for many Euro countries was low and the borrowing costs very high. Mario Draghi, the President of the Central European Bank (who can emit so many Euros as they wish with typing something in a computer) made a statement (1) that he will defend the Euro. The next day the debt problem was solved. 'The markets' know that governments that emit debt in their own currency, are not depending of ratings or people buying bonds because they control the currency. The European case is complicated because the Euro is kind of a foreign currency for the Euroarea, but the China case is obvious. (1). https://www.telegraph.co.uk/finance/financialcrisis/9428894/Debt-crisis-Mario-Draghi-pledges-to-do-whatever-it-takes-to-save-euro.html https://www.telegraph.co.uk/finance/financialcrisis/9428894/...
endorphone 8y ago
Over half of US debt is held by Federal retirement funds -- e.g. Social Security. So you put that money away for your retirement, and that retirement fund automatically buys close to no return t-bills. It's all really a giant pyramid scheme, and is only tenable with unsustainable population growth. The US can run an enormous deficit for as long as they can convince the population that their retirement funds should pay for today. Savings bonds end up being the poster child of the debt, but less than 1% of the debt is actually bonds like that.
- seanmcdirmid 8y ago
  It’s more like the other way around: the USA must run large deficits so that massive retirement savings have somewhere to go. Money can’t be saved without being lent. The only question is whether retirement savings are better invested with the us government or more privately like in a 401K (this is what Bush 43 wanted to do with his SS reform). Supply is just as important as demand when looking at debt.

deleted 8y ago

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ChrisLomont 8y ago

You cannot get debt without a lender.