I cannot get my head around it, what is it? I have heard it is not like debt we go into, who are the government in debt to exactly? And what are the consequences of not paying said debt? Could another country claim our assets or something?
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In the US, you can personally go to [www.treasurydirect.gov](https://www.treasurydirect.gov) and create an account.
At TreasuryDirect, you can give the government money to buy a bond, such as an EE Bond, or I Bond. The government holds your money for some time, and at the end, you get your money back plus interest.
Congratulations, you now own government debt.
Banks, other foreign governments, literally ANYONE can buy government debt. Because the US Congress never passes a budget with more taxes than expenditure, government debt is always available for sale.
If the government chooses not to give your money back, or fails to pay interest, the immediate downside for the government? Nothing. They can tell you to pound sand because you can’t order the police to take the government’s stuff to pay you back.
So, if the government wants to default or not pay the debt back, they can do it ONCE. You get ONE free lunch, so you better make it count.
The downside to defaulting, or stealing are:
1. The person being stolen from, such as treasurydirect buyers, have lost money with no way to get it back. Because many of these people are US voters, they can vote out the people in charge, use the judicial system to challenge Congress or the Executive, or not able/willing to pay taxes.
2. Attempting to raise debt in the FUTURE becomes difficult. If people know you have stolen from them in the past, they believe you’ll do it again, so they won’t loan you money. Hence the government MUST pass a balanced budget in the future, or pay higher interest rates for people to be willing to take the extra risk.
3. Other downstream effects. This is where things start to get complicated. Often, banks and other large institutions don’t pay each other in cash, but in government bonds. They use the bonds LIKE cash, because they trust the government will eventually pay it out. But for ease of use, the extra interest, bonds or treasury bills often get used in lieu of cash. If the government defaults on one bill, they might default on other bills. So people currently holding bonds instead of cash start getting nervous and will start dumping them. This can have complicated knock on effects in the economy where the bottom line is places like Walmart, despite being profitable and “rich”, can’t pay their employees because their assets are in bonds and not actual cash.
Government debt is in the form of bonds that are sold to investors. You can buy a bond as an individual, but most are bought by large institutional investors like mutual funds, pension plans, insurance companies, university endowments and such. While some may be foreign owned, the vast majority are owned by Americans/American companies and organizations.
The bonds have specific payback terms with regard to interest payments and time frame to maturity, at which point the government pays back the principal. The government often issues new bonds as old ones mature, when they issue more bonds than mature the debt increases, and if they issue new bonds at a slower pace than they mature the debt goes down.
In the US, you can personally go to [www.treasurydirect.gov](https://www.treasurydirect.gov) and create an account.
At TreasuryDirect, you can give the government money to buy a bond, such as an EE Bond, or I Bond. The government holds your money for some time, and at the end, you get your money back plus interest.
Congratulations, you now own government debt.
Banks, other foreign governments, literally ANYONE can buy government debt. Because the US Congress never passes a budget with more taxes than expenditure, government debt is always available for sale.
If the government chooses not to give your money back, or fails to pay interest, the immediate downside for the government? Nothing. They can tell you to pound sand because you can’t order the police to take the government’s stuff to pay you back.
So, if the government wants to default or not pay the debt back, they can do it ONCE. You get ONE free lunch, so you better make it count.
The downside to defaulting, or stealing are:
1. The person being stolen from, such as treasurydirect buyers, have lost money with no way to get it back. Because many of these people are US voters, they can vote out the people in charge, use the judicial system to challenge Congress or the Executive, or not able/willing to pay taxes.
2. Attempting to raise debt in the FUTURE becomes difficult. If people know you have stolen from them in the past, they believe you’ll do it again, so they won’t loan you money. Hence the government MUST pass a balanced budget in the future, or pay higher interest rates for people to be willing to take the extra risk.
3. Other downstream effects. This is where things start to get complicated. Often, banks and other large institutions don’t pay each other in cash, but in government bonds. They use the bonds LIKE cash, because they trust the government will eventually pay it out. But for ease of use, the extra interest, bonds or treasury bills often get used in lieu of cash. If the government defaults on one bill, they might default on other bills. So people currently holding bonds instead of cash start getting nervous and will start dumping them. This can have complicated knock on effects in the economy where the bottom line is places like Walmart, despite being profitable and “rich”, can’t pay their employees because their assets are in bonds and not actual cash.
Government debt is in the form of bonds that are sold to investors. You can buy a bond as an individual, but most are bought by large institutional investors like mutual funds, pension plans, insurance companies, university endowments and such. While some may be foreign owned, the vast majority are owned by Americans/American companies and organizations.
The bonds have specific payback terms with regard to interest payments and time frame to maturity, at which point the government pays back the principal. The government often issues new bonds as old ones mature, when they issue more bonds than mature the debt increases, and if they issue new bonds at a slower pace than they mature the debt goes down.
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