I’ve heard that the government has to pay various nations the interest on their share of the deficit. Why do we have to pay the interest every year, but the entire massive hole of money doesn’t need to be plugged?
For the same reason that if you have a credit card, you can get away with paying the interest on the credit card every month and not the principal without worrying about collection agencies or your credit rating.
The US has a certain amount of debt (not deficit…the budget deficit is the amount of money the government spends over the amount it takes in…the debt is the total amount of money the government owes), in bonds, treasury notes, and T-bills. When this debt becomes due, they can keep on recycling it, by issuing new treasury notes and T-bills to pay off the old debt.
Huh. I want a card from your company. On my cards and on the cards that I work with just paying the interest isn’t going to cut it. Minimum payments are anywhere from 2 to 5% of the balance and monthly finance charges usually are at about 1.5%.
Those are the rules set by the lender. Uncle Sam has made an agreement with it’s lenders that he will only pay the interest until the entire note is due-then he pays in full. An “interest only” mortgage is exactly the same.
If lenders insisted on receiving some of their principal over time, I am sure Uncle would accomodate them. It is all paid back with borrowed money after all. Doesn’t matter to Uncle how people want to think of the payments.
The only potential problem is if for some reason lenders would decide not to refinance the debt. Happens regularly to various smaller gov’ts. It has never happened to Uncle Sam, but it might. Then I guess it is sheriff’s sale time! :).
The debt DOES have to be repaid. We just reissue new bonds and notes to replace the ones that are redeemed. It’s called rolling the debt over. Many people do the same thing with their credit cards. They pay the monthly payments each month, which includes some principle payment, and then charge more so that the principle owed has not decreased. That’s your Federal Government at work.
Don’t forget that, for the lenders, the interest on each piece of debt is a nice income. They may not want the debt to be paid back.
Especially since the “lenders” are note holders, bond bearers, etc., that is, little old ladies who like their fixed retirement income and don’t want to have to renegotiate it. 