I know there are conflicting views on how much of an actual crisis the national debt is to us in the US. Looking for a clear way of understanding how the whole global trade, borrowing money through bonds works. Please don’t use this to soapbox your opinion, just need an explanation of the processes.
Why wouldn’t they? Bonds allow the government to borrow money with very low interest rates. That money can be reinvested into programs that will (hopefully) generate enough tax revenue to cover the interest.
That virtuous cycle doesn’t care if the buyers are foreign or domestic.
It doesn’t really have a reason not to. If people abroad want to buy U.S. bonds, that’s more demand, which translates to a lower cost to the U.S. for the same bonds.
It’s pretty normal supply/demand. If demand goes up and supply is fixed, the price goes up (or since we’re talking bonds instead of a product, the yield goes down. They can offer a lower interest rate and they’ll still sell). Or if demand goes up, you can increase supply without changing the price.
The U.S. gets the money upfront, so it doesn’t have to worry about a default or anything
Actually, they don’t have to. The banks who bought them can just resell them to foreign investment firms.
It also has the effect that drives up demand for US dollar (as in driving the value up) because they have to buy USD to buy these bonds.
The person buying the bond gives hard currency to the US government, which can then buy real things for Americans, and in exchange they get an IOU that has absolutely zero external enforcement mechanism. 100% of the risk is on the person buying the bond. Why *wouldn’t* we want foreigners buying a bunch of that?
Why not? The point of a bond is to raise cash now and one person’s money is as good as the next. The bond isn’t like a mortgage or something where the person who purchases that debt has some power or something they could foreclose on and claim. It’s backed basically by faith in the US government and the economy providing its taxbase.
So…there’s very little to lose in one person buying it over another. If significant chunks of debt are bought up overseas then that just means more people around the world have a vested interest in the ongoing solvency of the US government which is not a bad thing.