Those Debts Are Piling Up

So yesterday I started talking about government bonds. And how that was a relatively safe investment option for individual traders. But I also promised that if that post had gotten long, I would talk about government debt in a different post. Which is closely linked to these particular bonds. So I will not make much delay and I will get it over with today. I want to explain how government debt works and how this is the norm and at the same time a very big problem which is looming on our heads. ---  [Source](https://pixabay.com/illustrations/euro-seem-currency-ball-bullet-447209/) --- So I've already explained how governments borrow money from people or banks or different countries by issuing bonds, which is a promise to pay back and until paid back a certain interest to be paid. That was a quick refresher. Now most countries have the majority of their debts tied up in two places. One is the banks inside those countries and the other is other countries. For example, debts of the USA are held by China and Japan who are some of the biggest holders and along with them there are other countries as well. These countries act like individual investors but on a larger level. So there's no change in the way these bonds work on a country level from an individual level. The problem is, say country A has borrowed money from country B. Now country B also needs money and it borrows from country C. Country C needs money so it borrows from another country again. And this cycle continues. Most of the time it eventually circles back. Because there are only so many countries in the world and only so many of them require a loan of a certain amount. But just like your very own credit card. These loans are also going to pile up. So what does a country do when it can't pay all the interest on the loans that are taken out? It borrows again. It borrows more money to pay the interests on the previous loans. The cycle continues. And this has been normalized so much that it is now very obvious that you will see your government's annual budget having allocations to interest payments on government bonds. Everyone has them. Then someday a country can default just like an individual and then austerity measures kick in. You're used to seeing people's houses getting confiscated by the banks because they defaulted on their mortgage. In this scenario, entire economies will die when a country defaults on all its loan payments. This is what we have seen many times in different countries over the last few years where they have defaulted and the IMF has bailed them out. And just like austerity measures, the IMF bailouts are tranched. Money will hit those countries' banks only when certain conditions are met. There are countries around the world who are drowning in debt at the moment but some can afford them because of how big their economy is and how much. Their currency is influential throughout the world, but everything has a limit and the way this balloon is getting bigger. It might pop soon. And things will be really ugly if that happens.