Why do governments borrow money?

[iron81]

Bump.

[Copernicus]

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Ie nothing has intrinsic value, value is determined by the whatever the market says it is.


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Fair enough, certainly no one "guarantees" that gold will retain value. But the post that spurred me claimed that the dollar's value was based on faith in a government promise. That's misleading if, as you say, and as I had previously believed, they make no promises regarding its value. If I've misunderstood you, perhaps you can tell me WHAT is the promise?

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The promise is the entire economy. Only the government has the ability to tax the economy to pay off its accumulated debts. For a competitor to the dollar to succeed, lenders have to be satisfied that its replacement has the equivalent or greater value . Only a government with taxing ability can ensure that value, and there is only one government issuing the money.

[kimchi]

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and there is only one government issuing the money

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Which government is this? It's not the US government.

[Mark1808]

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LOL, maybe you should learn macroeconomics (and not from a community college).
In all seriousness, the Gov't debt is indirectly financing our consumption. The biggest owners of our debt are our trade partners. They are giving us their goods for a promise that we will have something worth giving to them in the future.

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Our trade deficit is the difference between exports and imports and is not something which needs to be financed. A trade deficit is simply offset by a capital surplus. We give currency for foreign goods, we have trade deficit and they have capital surplus. The fact that they choose to invest that capital surplus in our government bonds means that they find that the most attractive use of those funds. They could just as easily buy real estate, stocks or any other goods and services those dollars will buy.

Governments borrow money to pay for services they provide its citizen's like national defense, trips to the moon, highways, roads and bridges to name a few. Bonds are sold through investment banks that collect a fee like they do on any underwriting. Money is created when the FED buys bonds on the open market from member banks and gives them a book keeping credit in exchange for the bonds. Because of fractional reserve requirements this credit is multiplied throughout the banking system

Money is a medium of exchange and has no real value. Its value is that others will accept it as trade for real goods and services. Inflation erodes the value and confidence in money and gives some restraint to FED policies.