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Here is a link to a article I've been reading:

https://www.stlouisfed.org/on-the-economy/2021/march/servicing-national-debt

In this article it says:

"While household debt must eventually be repaid, a government can, in principle, roll over its debt indefinitely, Andolfatto wrote. How is that possible? The short answer lies in U.S. Treasury bonds— marketable securities that are used in financial markets as a form of money."

What does he mean by "roll over it's debt indefinitely". I understand how a roll over works with personal loans for things like cars, but I can't imagine it being the same with bonds.

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You just issue new debt to pay for the old one. For example, suppose US issued 0 coupon bond with face value 1000USD with maturity of 10 years in 2013. Rolling over this bond just means that in 2023 they issue new bond or several bolds (how many they need to issue depends on market price of the new bond not face value so this number will vary, they will have to issue enough new bonds to get 1000USD) and use money from sale of those new bonds to pay the face value on the matured bond.

This can be rinsed and repeated ad infinitum, unless country gets itself into debt crisis where no creditors are willing to buy country's debt for some reason or unless the debt is on explosive path. However, as long as growth of GDP is equal or higher than rate of interest government can roll over forever.

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  • $\begingroup$ Ahh ok, so it's not really like a car loan rollover, they payback the principal through issuing new bonds, they don't roll the principal into a new bond. Thank you for your great answer $\endgroup$ May 24, 2023 at 18:54

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