where does the united states get it's money from?
as a 27 year old usa male, i see the government handing out 600+ dollars to everyone unemployed who lost a job due to the virus, i also hear we are trillions in debt, to who though? if we don't pay it what happens? i am 30 grand in debt to student loans, i can't bankrupt it, but if i don't pay it i don't think i get locked up, what happens to my country and how do they just print money and give it away,
- CliveLv 71 month ago
Your debt is no doubt to banks. And no, you wouldn't get locked up for not paying debt, as it's not a crime. All the banks could possibly do is sue you for not making the agreed repayments.
But the government doesn't borrow from banks. What it does is issue Treasury notes, bills and bonds. You can buy these as an investment, and it's seen as safe because they're backed by the government. They are issued for a specific time and you get paid interest - in the case of short-period bills, you pay less than the amount on them, then when the maturity date comes up, you get the full value. Then the government will issue more bills to cover the cost of doing that and it keeps going round and round.
Effectively it's borrowing where the borrower makes the rules! It's like you didn't borrow from the bank according to THEIR rules, you borrowed by saying "invest in me and I'll give you this much interest". Or like a company issuing stock, except there isn't a set interest rate on stock, you buy it for the chance of getting dividends, and the value going up so you could sell it at a profit.
Yes, the US government is trillions in debt, and it borrows more every year. And who it is in debt to is banks, pension funds, foreigners, individuals, anyone who thinks Treasury paper is a good investment. As long as it doesn't borrow so much it can't afford the interest, there is no problem. Just about every government is the same.
Pension funds account for a lot of it. Yes, you can make more by investing in the right company stocks, but what if there's a stock market crash just before you retire? So a normal pension fund strategy is as you get older, start moving the money into safer investments. Then it might not make so much, but it keeps you safe from losing it all.
The US government manages it well, it knows not to borrow TOO much, it will have worked out it can afford the interest on what it borrows to fund stimulus checks, and will have worked out this is better than doing nothing - people spending this money keeps businesses going and still paying taxes. The alternative would have been more businesses collapsing and less tax for the government.
But let's imagine the government wasn't so sensible and got itself in the situation where it couldn't afford the interest. Greece did that a while ago. It ended up begging other countries for more to bail it out, and it affected the value of the currency. Now as its currency is the euro, this dragged down the value of the currency in all the other countries that use it, so it was in their interest to help Greece. I'm British and as we never joined the euro, we sat smirking and saying "not our problem!" It got difficult for Greeks to get their money out of banks too.
But the USA has never been that stupid, it doesn't borrow TOO much more each year, so it can always repay the Treasury paper and people happily buy more knowing it's safe. It also keeps the mighty dollar being the mighty dollar.
You mentioned printing money - no, the US government isn't doing that, it's borrowing more. A small amount of just printing extra money is sometimes done, though, to stimulate the economy, but too much is dangerous - all it does is create inflation because there's more money around but only the same amount of stuff to buy with it. Then prices go up to keep the balance between supply and demand. Shops know they can get away with charging more so they do.
An example of "how not to do it" is Zimbabwe some years ago. Their idiot president, Mugabe, had a policy of getting whites off farms so blacks could have them. Unfortunately, the new farmers were less good at farming and food production went down. This led to rising food prices because there was less food to buy and the same amount of money available to buy it. The correct answer would have been "train the farmers" but no, the government printed more money. You guessed it, there's still no more food, so the price of it went up even more. And the government printed even more money. Eventually inflation reached 89.7 sextillion per cent before economists gave up trying to measure it, and now Zimbabwean dollar bills are only any use as interesting wallpaper. Mugabe eventually got kicked out by a military coup, he's dead now, but their dollar still hasn't recovered and everyone uses US dollars and South African rand because you can trust those!
- A.J.Lv 71 month ago
Money is now one giant electronic ledger. Bitcoin is backed by nothing. Cash money is only backed by faith in the government. It is guaranteed for tax payments, and if you have a debt already, cash is required to be acceptable.
Federal debt is skyrocketing.
They sell bonds (IOU's with interest), mostly to rich people and corporations and mutual funds. About $26.5 trillion in debt, some intragovernment.
Essentially, they refinance the debt, borrowing more and more. Interest is an expense. Thoughts of not being paid back would raise the interest rate, which increases the expense and debt in a spiral.
Eventually, it affects the value of the dollar internationally, and inflation.