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Treasury bonds issued by the U.S. Government are considered virtually risk-free, because they are backed by the U.S. Government's ability to tax in order to pay them off.

  1. I understand that Treasury bonds are one of the least risky investments, but with the national debt increasing by a huge amount every year, should I be concerned that the U.S. Treasury will start defaulting on its bonds?

  2. The debt-to-GDP ratio is hovering above 100%, and prolonged high debt-to-GDP slows economic growth. However, people still continue to buy Treasury bonds. What are some good reasons to buy Treasury bonds despite the high debt-to-GDP ratio?

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    Greece may have to tax. The U.S. has monetary sovereignty. – Rodrigo de Azevedo Aug 20 '20 at 16:36
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The US Treasury wouldn't dare to default on its debts. It would cause a cascading failure of the government finances.

Governments live on borrowed money. Because they are such low risk, they can borrow money at exceptionally low interest rates. If the US Treasury started defaulting on bonds, they would immediately drop to junk status. The amount of interest the treasury would have to offer to pursuade anyone to lend them money would rise massively. But that leaves them paying out more in interest, so they have to borrow more to make up the shortfall.

Unless taxes were raised massively, the government would end up in a spiral of debts it couldn't get out of, short of defaulting on everything. At that point, government spending collapses as they have no money, because nobody will lend them anything.

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