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As far as I understand it, it has nothing to do with creditor’s ability to collect but the interest future creditors will be willing to part with their money fo

As far as I understand it, it has nothing to do with creditor’s ability to collect but the interest future creditors will be willing to part with their money for. With an institution even a fraction the size of the US federal government, I don’t think people can reasonably collect, and instead the incentive to take care of current creditors is to give future creditors confidence that their investment is safe. Historically this allows the US to borrow at very low rates.

merpnderp 5y ago
People often get all full of bravado about this, but they miss your point. It isn't about the money already loaned, it is about the billions a year the US government needs to borrow to stay functional. Scare off investors and they'll find somewhere else to keep their money safe.
heinrichhartman 5y ago
Who are those creditors? Who set's that interest rate? It's largely the FED, right? What prevents the FED from keeping the interests low, if the US-Gov does not want to pay?
- mattnewton 5y ago
  When we talk about debt, we are usually talking about bills, notes, and bonds the US treasury issues. The Federal reserve does buy lots of treasury bonds but it’s a fraction of the public market as a whole. Most of the debt is held by American institutions and private individuals, then American government agencies and the fed, then the remaining third or so are foreign governments/institutions. https://www.thebalance.com/who-owns-the-u-s-national-debt-3306124 https://www.thebalance.com/who-owns-the-u-s-national-debt-33... My understanding is that the Fed buys treasuries at the market rate and does attempt to keep interest low that way by creating some demand at the current rate, but that it’s ability to influence the treasury rates is not as important as the perception that American debt is rock solid. It works by buying a small amount to “soothe markets” and keep other players interested, and is unable to create all the demand by itself without basically destroying the value of the dollar. Disclaimer: I’m not an economist and probably have massive gaps in the details and mechanics of The US’s fiscal policy (or monetary when we talk about fed creating credit to buy treasuries).
Donotbeliveme 5y ago
Interest Rates! You nailed it. Nobody is going to collect on the US, but if we default we basically lower our national credit score. It then becomes harder to get/give loans internationally. Debt is also super complicated. The most recent estimate is only ~40% of all public debt owed is foreign. That means the rest of our debs it owned by Americans themselves or intergovernmental. This article is mostly highlighting that we will need to borrow in order to fund some of these programs. I doubt that will be difficult for us considering our current credit rating. https://sgp.fas.org/crs/misc/RS22331.pdf https://sgp.fas.org/crs/misc/RS22331.pdf

merpnderp 5y ago

People often get all full of bravado about this, but they miss your point. It isn't about the money already loaned, it is about the billions a year the US government needs to borrow to stay functional. Scare off investors and they'll find somewhere else to keep their money safe.

heinrichhartman 5y ago

Who are those creditors? Who set's that interest rate? It's largely the FED, right? What prevents the FED from keeping the interests low, if the US-Gov does not want to pay?

mattnewton 5y ago
When we talk about debt, we are usually talking about bills, notes, and bonds the US treasury issues. The Federal reserve does buy lots of treasury bonds but it’s a fraction of the public market as a whole. Most of the debt is held by American institutions and private individuals, then American government agencies and the fed, then the remaining third or so are foreign governments/institutions. https://www.thebalance.com/who-owns-the-u-s-national-debt-3306124 https://www.thebalance.com/who-owns-the-u-s-national-debt-33... My understanding is that the Fed buys treasuries at the market rate and does attempt to keep interest low that way by creating some demand at the current rate, but that it’s ability to influence the treasury rates is not as important as the perception that American debt is rock solid. It works by buying a small amount to “soothe markets” and keep other players interested, and is unable to create all the demand by itself without basically destroying the value of the dollar. Disclaimer: I’m not an economist and probably have massive gaps in the details and mechanics of The US’s fiscal policy (or monetary when we talk about fed creating credit to buy treasuries).

Donotbeliveme 5y ago

Interest Rates! You nailed it. Nobody is going to collect on the US, but if we default we basically lower our national credit score. It then becomes harder to get/give loans internationally. Debt is also super complicated. The most recent estimate is only ~40% of all public debt owed is foreign. That means the rest of our debs it owned by Americans themselves or intergovernmental. This article is mostly highlighting that we will need to borrow in order to fund some of these programs. I doubt that will be difficult for us considering our current credit rating. https://sgp.fas.org/crs/misc/RS22331.pdf https://sgp.fas.org/crs/misc/RS22331.pdf