Why Are So Many Nations in Massive Debt? Who is Lending Them All This Money?
In: 9
You do, but indirectly.
Pension plans, banks, and to a lesser extent everyday people (looking at you Japan).
A pension plan has a mandate which often will prescribe things like “you shalt own between 30% and 40% of AAA rated bonds or similar financial instrument.” So, if the consensus rating on a country drops outside this mandate, the pension **must sell** them and buy another country’s debt (see “financial contagion” or “panic”).
https://en.wikipedia.org/wiki/List_of_countries_by_credit_rating
Banks sometimes must hold a percentage in these instruments as well to prevent them from investing too much in riskier assets – this is often called a capital requirement.
So a sizable chunk of the housing market is backed by government debt. And because of pension plans, so is a good slice of the stock market.
Latest Answers