bonds

What happens when the government runs out of money?

What happens when the government runs out of money?

Readers Question: Since the debt is mainly in the form of government bonds or gilts then it can only be paid back when the term of the bond terminates. What happens if there is not enough money to pay this back? Government bonds are a method for the government to borrow money. They sell bonds (e.g. for ¬£1,000) and promise to pay back the bond holder in say 30 years. In the meantime, they will pay…

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Why Fed Tapering caused a rise in bond yields

Readers Question Why did bond yields in the USA rise at news of the Fed Tapering back in August? The Federal Reserve has been engaged in a policy of¬†quantitative easing. This involves: Creating money electronically Using this created money to buy assets, such as government bonds. The aim of quantitative easing is to stimulate economic activity – increase economic growth and avoid inflationary pressure. QE aims to stimulate economic growth through increasing the money supply and reducing interest rates in the economy. When the Fed buys bonds, the greater demand pushes up the…

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Would it Help to Buy Bonds from the Government?

Readers Question: If all Greeks native or from abroad (or any other country in debt) bought their own bonds would this make the debt much lower? No, it would not make the debt any lower. But, it would help to finance the government’s deficit. It would make it easier for the government to avoid a debt crisis. If sufficient people bought government bonds then it would reduce the interest rate on government bonds. The advantage of this would be: Lower bond yields (lower interest payments) saves the government money. Many European…