Why does the US sell unlimited numbers of Treasury Bonds?!?
Im no economist but I really don't understand why the US sells unlimited numbers of US treasury bonds.
If my understanding is correct, the foreign nations that buy these bonds heavily are doing so because they get paid interest on them and rather than converting their dollars into Yen or some other domestic currency of the nation they decide its just easier to buy dollar denominated assets, obviously US treasury bonds are a major option to them.
My question is why the US allows unlimited bonds to be sold when we have to pay interest on those bonds. As it stands we have a problem with inflation because of so much debt is owed on these interest payments to foreign nations. Obviously thats not the only reason for inflation but it is a definite contributing factor.
So why then do we allow this unlimited selling of treasury bonds to foreign nations?
Wow, the answers so far have been great. Thanks guys.
My understanding was that we paid for the Iraq war and other extra expenses with revenue we already had collected through taxes. This is all enlightening to me, again thanks.
- 1 decade agoFavorite Answer
I don't know where you got the idea that the US sells an unlimited amount. They do indeed have the ability to do so, but its not a situation where they will sell them because somebody decides they want to invest in them.
The Treasury issues bonds to fund the deficit spending of the government. Generally speaking, they limit the issue and sale of bonds to the amount necessary to cover funding needs, which will include interest and principal payments on previously issued debt.
- 1 decade ago
The government loves to sell bonds because they can raise funds for their current projects and yet not raise taxes. 10 years down the road, they have either fallen of the face of the earth, been elected to a much larger constituency, or pretty much don't support bonds for fund raising. The job of repaying these loans will now fall on someone else who will just sell more bonds.
Take any personal finance class and the last thing thy tell you do is buy things on credit. I have to say 5-10% is a good loan (not great), but I still don't think they do many cost-benefit analysis on whether this investment will pull in more $ than cost in interest. Now if say the bonds are to build a new expressway to a new city or fund a new port of some sort, it will most likely be paid off by the new tax base. Of course there have been some fantastic pork barrels which prove me wrong.
As for foreign purchasing, this isn't china. Foreign investment is encouraged. This is why I hear China buys much of the bonds and they are practically funding Iraqi Freedom. I sure didn't notice my taxes go up in the past few years.