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The US Government spends more money than it takes in taxes. In order to finance the difference it takes out loans (in many ways just like you might take out a l
by harryh 7y ago
The US Government spends more money than it takes in taxes. In order to finance the difference it takes out loans (in many ways just like you might take out a loan to buy something). These loans take the form of government bonds.
Various people/organizations buy these bonds and give the US government money. Later on these bonds "mature" and those people get their money back plus some interest.
This post is saying that about 9 trillion dollars worth of these bonds will mature in the next 4 years so the US government will need to come up with that much money to pay the bondholders. The way the government does this (for the most part) is by "rolling over" the debt. This means the government will issue new bonds that pay out at some point in the future.
In some ways this is actually great for the government because interest rates are at very low levels right now, which means the new bonds will (in most cases) have a lower interest rate than the old ones.
- bilbo0s 7y ago>In some ways this is actually great for the government because interest rates are at very low levels right now... Just what I came here to mention. The debt that matures will almost certainly have had a higher interest rate than whatever the amalgamated rollover rate will be.
- SCAQTony 7y agoOne buyer, in particular, most likely will stop buying and that is China.
- JamesCoyne 7y agoHave they made that threat?
- swarnie_ 7y agoNot to my knowledge, its all just speculation.
- tcbawo 7y agoChina has fluctuated between being a net buyer and net seller recently (https://ticdata.treasury.gov/Publish/mfh.txt https://ticdata.treasury.gov/Publish/mfh.txt)
- bilbo0s 7y agoMaybe, but China only holds about USD1T in US bonds. With the majority of that not maturing in the next four years.
- XorNot 7y agoIf China stops buying then they'll lose their competitive advantage compared to regional neighbours with the US.
- JudgeWapner 7y agowhen you have sovereign-nation-levels of wealth, there aren't many other sane places to park your money.
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- jhallenworld 7y agoSo right now the yield curve is inverted. This means the demand for medium term government bonds is high, so their interest rate is low (lower than short term). https://www.gurufocus.com/yield_curve.php https://www.gurufocus.com/yield_curve.php Historically this means a recession is coming. The reason is that investors are thinking that other investment options are not good, so they are parking their money in safe bonds. Anyway, this is good for government dept I guess. Government dept is held mostly in short term, so the percentage of government spending used to service dept is very quickly tied to interest rates. Things can go bad fast if interest rates go up.