The Bank Of Japan owns around 45% of all Japanese debt issued as government bonds. The Bank of Japan gets its funds solely from the government – it’s not a commercial bank that gets its money from clients to invest in bonds. Therefore, the government basically owns it own debt. Isn’t that just the government taking money from one of its pockets to put it in the other pocket? How could you default on a debt to yourself? Why go through the charade of buying government bonds in the first place to only have to pay interest on which, of course, you can collect the interest? I know they are independent entities but the money still has the same root even if the decision making bodies have some independence.
In: Economics
There are two reasons, first is that businesses (especially banks) are bound by a lot of laws. These laws are there to e.g. protect the customers interest and ensure fair competition. Because of these laws, the government can’t directly take money from the bank whenever it needs it. It’s the same reason why they can’t just take money from the people, even though the government are democratically elected to represent the people.
Second reason is that when debts are owed by the government rather than a person, it’s not that bad. The borrowed money are spend on government projects and paid to contractors, so it improves infrastructure and puts money into the people’s pockets. All great stuff that stimulate economic activities. The government has a lot of methods to pay back the money owed to bond owners without losing anything, such as printing more money to the extent that the total money paid back in the future is worth less than what they are borrowing now.
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