How does the US government payback the debt it owes?
I’m talking about how it physically does this. I had a few bonds when i was younger, from what i remember they basically worked like a check and you cashed it in.
What about other nations that hold US debt?
Every year does China go and cash in their billions of bonds, do they even have billions of bonds? Does nation to nation lending act more like a bank lending money with contracts as to how the debt needs to be repayed.
Does the US Government get a bill in the mail every month?
I know, kind of silly questions, but im curious.
US Treasury securities are almost completely electronic these days, with the exception of paper Savings Bonds, which are also being gradually phased out. Instead of taking a piece of paper to a bank to get your cash, a computer system has your bond – along with its maturity date – stored, and when it matures, the money you’ve earned is automatically sent to your bank account electronically using ACH.
China certainly isn’t holding billions of Savings Bonds, if that’s what you’re asking. “Bond” is a term that simply refers to a security with a maturity date more than 10 years after it is issued. The $25/$50 Savings Bonds most people know about are just one type of government bond – specifically, a citizen-friendly form of investment for individuals. These account for a very small percentage of the national debt.
Most of the rest of it comes in the form of larger “marketable” securities (bills, notes, bonds) that the Treasury auctions off to financial institutions on a regular basis, going up into the tens-of-billions of dollars range at each auction. Again, these are electronic securities, just numbers in a database, and payments are wired at the appropriate times into investors’ bank accounts. This is where foreign entities have grabbed significant chunks of the US debt.
Here’s a page on Treasury’s website that explains a little about how the auctions work:
http://www.treasurydirect.gov/instit/auctfund/work/work.htm