Buyers like government bonds because they are low risk of default. At the federal level, the risk is nearly zero. The yield of a bond is a reflection of the d

Buyers like government bonds because they are low risk of default. At the federal level, the risk is nearly zero. The yield of a bond is a reflection of the demand (inversely proportional), which itself is a reflection of risk (also inversely, so yield is proportional to risk). The federal government funds itself through bond sales and taxes. They could choose to do all of one or all of the other. But they could just keep rolling over debt into more bond sales, in perpetuity, since the dollar is just a concept, and not a voucher for anything physical. There is essentially no risk, beyond the dollar itself becoming worthless. So if you need to park a million dollars for a few weeks, treasuries offer a nearly zero risk option. So government could run completely off bond debt. It might even be fairer than taxes... the poor usually don't have a million dollars they need to park. Government funding would come from the rich. The reason for taxes is power. You can use taxes to control and direct the population. Before the US federal government believed they had the right to make drugs illegal, they controlled them through taxes. You had to buy a tax-stamp to move marijuana, but the government would rarely sell any such stamps. The drug itself was not illegal, but not having the stamp on it was. [1] Later they just went ahead and declared it "controlled" and didn't bother with the stamp shenanigans. Also taxing removes the leverage that bond buyers have (which would be the decision not to buy). China owns a lot of us treasuries, and routinely uses that as a bargaining chip. Ultimately the fed uses a mix. Bond sales for monthly adjustments in spending, taxation to control the populace. And there are various economic theories on which is better, but I doubt anyone with such pure motives actually controls any policy. [1] http://www.druglibrary.org/Schaffer/hemp/taxact/mjtaxact.htm http://www.druglibrary.org/Schaffer/hemp/taxact/mjtaxact.htm