Economics Questions

Re: Stupid question about Gov Bonds

Bill — Wed, 01 Dec 2010 07:21:14 GMT

No problem..just give me cash now..and I'll send you a check later.

Re: Stupid question about Gov Bonds

Renboy — Wed, 01 Dec 2010 06:04:14 GMT

ok thanks. So they actually get the money and dont have to pay a cent till the due date? Wow! If only I could get a loan like that. :-)

Re: Stupid question about Gov Bonds

Merlin — Tue, 30 Nov 2010 20:57:39 GMT

Depends on the bond type. A T-bill, or ‘zero coupon bond’ pays interest plus principal at years end. To pay that, the government emits an other bond, a practice called rolling over. So, I need 100 bucks now, and I issue a 5% coupon bond. At year’s end I must pay you 105 bucks, but I do not have that money. So I borrow 105 dollars with an other, 5% bond. At year’s end I must pay 1.1025 bucks. As I have no money to pay those I borrow…you get the idea. Debt just keeps zooming until no one will lend you the money you need to pay past debt.

Stupid question about Gov Bonds

Renboy — Tue, 30 Nov 2010 14:58:36 GMT

Hi all

Please could someone help me out with what is probbly a stupid question. When the government sells a bond to someone, do they pay just the intrest on the bond till the due date and then pay the principle off in a lumbsum? When they say, "rolling the debt over" do they mean refinancing the principle till a future date?

Or do I have it all wrong and it works the sameway the bond on my house works?

Thanks