If all countries increase their debt in difficult economic times, they can’t be borrowing from each other, so who do they borrow from?

Question

If all countries increase their debt in difficult economic times, they can’t be borrowing from each other, so who do they borrow from?

In: Economics

Answer 1

A country doesn’t really “borrow.” It sells debt instruments.

The US Treasury issues debt instruments called bonds. A bond is a promise by the government to repay the cost of the bond, plus interest, at a later date (10, 20, or 30 years). People buy these bonds because they are an incredibly safe investment. The US government always honors its bonds.

The biggest single holder of US bonds is the US Social Security Administration, and the majority of bonds are owned by US citizens and US companies. International companies and foreign governments also invest in US bonds, because they are such stable investments.

So a country’s debt isn’t really like personal debt at all.