Maybe it’s pedantic, but the Treasury doesn’t really buy them back. A Treasury bond is basically “the Treasury will give the holder of this bond X dollars at Y date”.
Nothing forces the Treasury to buy bonds from the market, but they are bound to pay the specified amount on the specified date.
The problem is, in a bond market collapse, inflation is going to skyrocket, and the bond holder has no option other than to take that hit because the payout is fixed.
That’s what I meant by IOU. The treasury gives them the money, they return the bond, and it goes in the shredder. Of course it happens electronically these days, but before the internet there was a physical sheet of paper that was exchanged.
So instead of renewing/rolling over the bonds, countries can decide to collect the money owed and the US treasury can’t say no.
If they’re selling on the secondary market before the time is up, yes that’s different. But if everyone decides to sell then supply outpaces demand and the value drops. Then nobody buys new bonds from the US and they still can’t borrow, and have to default on their loans.
If the US refuses to honor its treasury bonds, then the promise to repay them means nothing and they lose their value. That would be a different way of crashing the US economy.
No one would let them borrow money anymore, meaning they would no longer be able to afford to pay the interest on the debt they’ve already accumulated.
Every sale requires a buyer
A treasury bond is basically an IOU: the treasury is legally bound to buy it back.
Maybe it’s pedantic, but the Treasury doesn’t really buy them back. A Treasury bond is basically “the Treasury will give the holder of this bond X dollars at Y date”.
Nothing forces the Treasury to buy bonds from the market, but they are bound to pay the specified amount on the specified date.
The problem is, in a bond market collapse, inflation is going to skyrocket, and the bond holder has no option other than to take that hit because the payout is fixed.
That’s what I meant by IOU. The treasury gives them the money, they return the bond, and it goes in the shredder. Of course it happens electronically these days, but before the internet there was a physical sheet of paper that was exchanged.
So instead of renewing/rolling over the bonds, countries can decide to collect the money owed and the US treasury can’t say no.
If they’re selling on the secondary market before the time is up, yes that’s different. But if everyone decides to sell then supply outpaces demand and the value drops. Then nobody buys new bonds from the US and they still can’t borrow, and have to default on their loans.
Who enforces these laws on the international stage?
If the US refuses to honor its treasury bonds, then the promise to repay them means nothing and they lose their value. That would be a different way of crashing the US economy.
No one would let them borrow money anymore, meaning they would no longer be able to afford to pay the interest on the debt they’ve already accumulated.