The U.S. government needs buyers of its debt as the Fed continues to reduce its holdings and the budget deficit is projected to surge in coming years.#Economy #Society #Life #Bills #Taxs #Jobs #Decisions #President #Congress #Future . A government bond is essentially a loan to the U.S. government. These are advantageous to the bond holder because the value increases according to interest rates, resulting in a profit when the bonds are redeemed.
Why Does China Buy U.S. Debt?by Jack Busch; Updated September 26, 2017
As the market economy and worldwide influence of China grows, so too does the nation's significance to the U.S. economy. China's manufacturing industry is highly productive, exporting goods to many Western markets, including the U.S. But the U.S. reliance on China is actually twofold; not only are we one of the biggest consumers of Chinese goods, but China is also one of our biggest creditors.
According to publications such as "The Financial Times" and "The Economist," China has always been one of the largest economies in the world. The People's Republic of China (PRC, or Mainland China) is the third-largest economy in the world, behind Japan and the U.S., as of 2008. Much of China's economic might lies within its industrial and manufacturing sectors, which account for nearly half of the nation's gross domestic product (GDP). China's factories are advantageous to U.S. businesses because they provide far cheaper labor than for goods that are manufactured domestically. As such, many distributors in the U.S. buy Chinese-manufactured goods or Chinese-brand goods.
Public debt is incurred in the U.S. when individuals buy government bonds. A government bond is essentially a loan to the U.S. government. These are advantageous to the bond holder because the value increases according to interest rates, resulting in a profit when the bonds are redeemed. Meanwhile, the government has increased spending power (i.e., leverage). For the most part, the U.S. debt is owed to its own citizens. However, as U.S. expenses grow, the government increasingly turns to other nations to raise capital. This results in external debt