Noah Smith

But when these private investors or other countries or regular people or whoever become less willing to buy the bonds, they have to offer a higher interest rate to get people to buy the bonds.

And so the interest rates go up and up and up.

But when the interest rates go up, the government has to roll over its whole stock of debt at those new higher interest rates.

And when it has to roll over this debt,

You know, it has to pay higher interest costs every month, every year out of its budget and has to pay those costs or else it defaults.

And if there's a government default, the economy crashes and very bad things happen.

So the government has to pay more and more interest each year.

So it can do one of two things.

It can either raise taxes and cut spending.

It can exercise fiscal austerity or it can just borrow more to cover the interest payments.

So that's what we're doing right now.

We're actually borrowing more and more to cover the increased interest payments on because our interest rates went up, you know, partly because the Fed raised interest rates, partly because people are demanding higher interest rates for long term bonds.

We are the government has to pay higher interest rates now and its whole stock of debt as it rolls it over.

And then so the interest costs per month per year are going up and up and up.

And we're just borrowing to cover that interest, too.

And that's bad because eventually people realize like, wait, they're not going to really pay this back, are they?

And then what happens, interestingly, is inflation.

So people realize that what will eventually happen, people might think there would be a default, but more likely is that the government gets the central bank to print money to pay off the debt.

It's a little more complicated than printing money, quote unquote.

But it's basically that.