Let's Talk Government Bonds

Do you understand government bonds? Let's talk about government bonds today. And subsequently, we will understand how debt works in this world. You will see that around the world different countries are in debt for trillions of dollars. I previously talked about the USA being around 36 trillion in debt. There are other countries around the world who also have debt similar to this number, obviously in the trillions. Now if everyone is in debt for so much money then how are they functioning? And won't they have to pay it back someday? That is what I want to talk about today. Yes, I have taken the unannounced role of sharing economic knowledge with all of you because I like talking about it. ---  [Source](https://unsplash.com/photos/focus-photography-of-person-counting-dollar-banknotes--8a5eJ1-mmQ) --- We might talk about how these countries function with so much debt in a different post but before I want to emphasize on government bonds which facilitate these debts. If this post gets too big by just explaining bonds, then we'll talk about debt in a different post. So bonds are like loans. The government needs loans. And most of the time they don't have the money right then and there. For example, your country is in a war and your government suddenly needs a lot of money to fund that war but it doesn't have much. It then obviously has to be borrowed from someone. So the government issues bonds. These bonds are a piece of paper on which is written a promise. The promise goes something like this. You will give the government x amount of money and in return as long as the money isn't paid to you, the government will pay you interests on a yearly basis. This sentence is the very foundation of government bonds. Now you might understand by now that if countries are trillions of dollars of debt then they must not be paying the money back to the lenders. So as an individual investor you might buy government bonds of say $10,000 which is a grain in the sand compared to trillions of dollars. And the government pays you interest for that $10,000 as you have now loaned it to the government like any normal bank loan. So on this level this $10,000 investment is probably the safest investment you can ever make until the government defaults and in which case the country is in chaos. So as long as a country functions properly you will be getting interest payments on the $10,000 you have bought bonds for. Then when you feel like you are done and you want to take your money out, you can simply sell this Bond to someone else. You're basically selling this debt to someone else. And the interest payments go along with it. So suppose you invested $10,000 in this system and the interest rate is 5% year on year. So you make 5% of $10,000 for every year you keep the bond and then after you sell it, you get back your original $10,000 and all the interest payments you received over the years of holding onto it. On an individual level, government bonds are seen as a very safe investment. But on an international level one country's debt is often held by different countries. So that will be country A holding on to bonds of country B. And this spirals around into the current debt crisis which the world is in the post is getting too long. So I beg your pardon and I will discuss this debt situation soon enough.