I feel like the United States is always meddling in other countries affairs and yet still climbing further into debt. Kind of like someone giving you advice on a golf course who is terrible themself. Is it the military presence? Economic relationships?
In: Economics
Because the debt we owe is mostly to our own citizens, as well as the world’s wealthy. Also, the interest in U.S. debt is hilariously low (1.25% for a 30 year bond). So, one wonders, if the value of the asset is so poor, why do people buy them? The answer is that the New York Stock Exchange is *denominated* in T-Bills. When you’re in a neutral position, that’s where your money is parked. So most of the U.S. debt, in addition to funding the government, is also acting as scrip (a substitute for money) for the financial sector.
So think about it like this: If you had a business, and you could borrow money at 1.25%, and invest it in your business with an expectation of earning 2.5%, then you’d have an incentive to borrow as much money as possible, as long as you can buy more of whatever you’re getting that 2.5% return from.
Finally, the biggest thing to understand is that countries don’t go broke like households, when they can print their own currency. So if the U.S. government finds itself in a position where it can’t pay back the $25TN it owes to everybody, it can and will print more money, devaluing the currency, and effectively reducing the payout to the holders of the debt. This will do a few things: Make the debt easier to pay off, shaving the profits of the holders of the debt, and make imports more expensive and exports cheaper, which in turn will boost the country’s economy. Effectively, you give the country a pay cut, and make importing things from abroad more expensive thereby.
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