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18 votes
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Is there a “runaway” threshold for Debt-to-GDP Ratio in the U.S.?

Is there a threshold we can pass in terms of debt-to-GDP that will cause a runaway sort of effect? No there is no threshold or magic number (at least not one we know of). Few years ago there was an ...
1muflon1's user avatar
  • 57k
14 votes

Why doesn't the government create money, spend it for free without interest, and recollect it with taxes?

Why doesn't the government create money, spend it for free without interest, and recollect it with taxes, you ask. Well, it does. That's exactly what public investment & spending, and the taxation ...
410 gone's user avatar
  • 8,168
13 votes
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What would happen if China called in its debt?

You have to understand how international debt works. These are not loans, but bonds. China buys a US bond for, e.g., 98 USD. This bond is a promise by the US Treasury to pay 100 USD one year from now. ...
Tobias's user avatar
  • 970
8 votes
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What would happen if the US defaults on its debt?

The Russian default was an extraordinarily insignificant event compared with a current-day US default on all treasury securities. There are no remotely similar events to compare it to. This makes it ...
farnsy's user avatar
  • 836
8 votes

Why do people buy negative interest rate bonds?

There are several reasons why it makes still sense. Nominal negative return does not mean that real return is negative. There is a difference between nominal interest rates and real interest rates ...
1muflon1's user avatar
  • 57k
6 votes

How did Portugal draw down their interest rates on pubic debt?

1.- The government imposed an austerity program and, in exchange, received assistance from the IMF and the EU. 2.- The ECB made it clear that it would do whatever as necessary to save the Euro, even ...
Fix.B.'s user avatar
  • 2,668
6 votes

Why is the USA not capable to pay its debt?

The US is in a privileged position of producing a currency that people in other countries want to use (as reserve). There's even a French name for that. Anyway, a result of that is cheap credit for ...
got trolled too much this week's user avatar
6 votes
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Do governments have to pay interest on government debt held by the central bank?

Yes, the government has to pay interest on debt even if it is held by the central bank. That is true at least for major modern central banks. For example, from a press release from the US Federal ...
BrsG's user avatar
  • 1,652
5 votes

Why is such a high US national debt not resulting in another great depression?

You answered question (1) with your own chart. The United States had a “high” debt-to-GDP ratio in World War II - and there was no subsequent depression. (There was a sharp recession as a result of ...
Brian Romanchuk's user avatar
5 votes
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What is the purpose of the Treasury issuing bonds?

There are some semantic issues here. A more careful statement of the MMT position is that there is no economic reason for the Treasury to issue bonds. However, there is a self-imposed institutional ...
Brian Romanchuk's user avatar
5 votes
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Relation between budget deficit and inflation?

Relation between budget deficit and inflation? There is no direct relationship between budget deficits and inflation, however, inflation is one of the ways government can choose to finance government ...
1muflon1's user avatar
  • 57k
5 votes

Do governments have to pay interest on government debt held by the central bank?

This may vary from country to country, but in most countries government pays interest de jure but not de facto as all major central banks send their profits (including profits made from interest ...
1muflon1's user avatar
  • 57k
4 votes

Who owns German debt?

This Deutsche Bank figure from 2013 has some broad categories for German debt and compares it with other rich countries: A newer chart, using slightly with more granular categories. Note that Germany ...
BKay's user avatar
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4 votes
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What's the difference between public debt, government debt and national debt?

With all these types of debt, there are various descriptions rather than standard definitions, and sometimes the same thing can be labelled with different names or the same name used for different ...
Henry's user avatar
  • 4,765
4 votes

What would happen if China called in its debt?

Also remember that China's holdings of US Treasury's are a manifestation of the fact that they run a current account surplus with the US e.g. they sell more stuff to us than what they buy from us, ...
HookahBoy's user avatar
4 votes
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Why did the Greek bailouts "fail" whereas the Portuguese bailouts succeeded?

Greece had more debt, less growth and higher budget deficits than Portugal throughout the crisis. As a result, the Greek bailout should have been even bigger, but this was politically untenable, ...
M3RS's user avatar
  • 1,087
4 votes

How does national debt work?

Your understanding is wrong. Nations accrue debt by selling bonds. They pay interest on those bonds to the bond-holders.
410 gone's user avatar
  • 8,168
4 votes
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Why is national debt bad if the central bank can keep buying bonds?

Yes. The central bank (say the Fed in U.S.) can purchase bonds, but notice: The Fed is not going purchase t-bonds and t-bills directly from the Treasury. It will only purchase or sell bonds in the ...
T. G.'s user avatar
  • 316
4 votes

Why is national debt bad if the central bank can keep buying bonds?

This site is aimed to give non-opinion based answers; this question is worded in a way that leads to opinions (“bad”). I will do my best to give a straight answer. I would argue that it is safe to ...
Brian Romanchuk's user avatar
4 votes

When a central bank buys government securities, is this exactly equivalent to printing money?

I don't know if you are aware that you are using the word "print" abusively but: The U.S. Treasury controls the printing of money in the United States. However, the Federal Reserve Bank has control ...
keepAlive's user avatar
  • 1,435
4 votes

What would happen if a country defaulted on its public debt?

A “full explanation” would be extremely long; depending on the situation, a great many things would happen. For developing countries, defaults are typically on debt in foreign currency, issued under ...
Brian Romanchuk's user avatar
4 votes

Why does the US have public debt if they make more than that annually?

The names “United States” or “US” refer to different entities here. With regards to the debt, they’re referring to the government of the country. With regards to the GDP, they’re referring to all the ...
Bill Clark's user avatar
4 votes

When the Central Bank sells a bond, where does the money go ultimately?

Federal reserve, has no limit on how much money they can print. Thus, when central banks buy bonds , new money flows into the system. Also, when federal reserve sells the bond , the money is taken ...
nsivakr's user avatar
  • 177
4 votes
Accepted

When the Central Bank sells a bond, where does the money go ultimately?

Firstly, the central bank doesn't issue bonds. The treasury (in the executive government) does, as a way to finance government expenditure, and make real investments in the economy. In modern ...
ahorn's user avatar
  • 1,230
4 votes
Accepted

What is the logic behind that one can "grow out of debt" via increase in GDP?

If they invest in productivity-enhancing stuff, GDP could grow at a faster pace than the [increase in] debt. Then the debt to GDP would decrease.
Art's user avatar
  • 2,792
4 votes

What would happen if the U.S. "refinanced" its national debt?

The Treasury continuously issues new debt, and retires matured issues. (This is called “rolling over debt.”) The Treasury has no right to pay debt off early (“refinance”). The closest thing that can ...
Brian Romanchuk's user avatar
4 votes

What is the purpose of the Treasury issuing bonds?

I agree with @BrianRomanchuk +1 answer which is written in the context of modern monetary theory (MMT), but an important thing to note here is that MMT is not widely accepted monetary theory in ...
1muflon1's user avatar
  • 57k
4 votes

How can a government save, if it has deficit?

Government can have savings while having deficit because we are just talking about savings not net savings. For example, imagine that government has zero tax revenue $\\\$10$ spending and $\\\$10$ of ...
1muflon1's user avatar
  • 57k
4 votes
Accepted

Price v return on gilts

There is an inverse relationship between the price of a debt contract and the implied yield (or rate of return). To keep things simple, assume the government issues debt with a contract length of one ...
BrsG's user avatar
  • 1,652

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