Adding to this, the money to repay bonds has to come from somewhere -- usually taxes. So, if a government issues a bond it is committing to collecting the amount of money for the bond-plus-interest from the populace. It's the government taking out a loan, essentially, on the basis that it can use long term tax revenue for repayment.

Why not just use taxes directly then? Sometimes you need a lot of money for a specific project and it would take too long to collect that money through taxes at a rate that is reasonably payable by the populace over a short enough time frame.

Suppose you need a million dollars to cover the cost of replacing some infrastructure -- like a critical pipeline for your town's drinking water -- but you only have 100 people in your small town. That's $10,000 per person if the cost is split evenly. The people in town may not have that much money to pay all at once, but getting the pipe fixed so they have water to drink is really important. So, the government gets a loan (i.e. issues a bond) and pays out the amount plus interest over a long period of time. Adding 5% interest and breaking the payments up over a 30 year term would require everyone in that hypothetical town to need to pay about $30/mo more in taxes to cover the cost. That's probably a lot more politically feasible to actually collect than trying to get everyone to pitch in $10k right now.

[–] captainlezbian@lemmy.world 3 points 1 week ago

Yeah a good example of responsible use of bonds is the Seattle metropolitan area issued bonds to build a light rail system then to expand it multiple times. This enables denser housing, less spending on highways, and just generally increases the area's financial viability. They've bet that that money will either be worth it in the long run of slowly paying it all off or that it'll produce enough taxable revenue to pay it off.

More cities should follow their lead here.

[–] sp3ctr4l@lemmy.dbzer0.com 2 points 1 week ago* (last edited 1 week ago)

Adding further to that:

If its the Federal Government that is issuing the Bonds... well, the Federal Reserve can actually just print the money out of nothing, into existence, by fiat, when they 'buy' some of the Bonds from the Federal Government, if other market actors don't want to pay for the Bonds with already existing money.

This is called the 'Primary Dealer Takedown' in fancy pants monetary/finance speak.

This more or less directly is monetary inflation.

But it can get very confusing, very fast, when you have some people arguing that the best way to define inflation is... actual price levels consumers pay, prices manufacturers/retailers pay for input materials, and others arguing that better definitions of inflation relate to the actual amount of dollars that exist, that exist in various kinds of accounts, etc.

Without going fully into trying to explain monetary theory and international Bond markets...

... this, and things like it, when the Federal Reserve just poofs money into existence, to exchange for... a Fed Gov Bond, or Mortgage Backed Securities, or what have you... this is where the 'money printing' most literally, directly happens.

And then the effects of that, well again, very contentious as to precisely how and to what extent, but this is where you get theories saying that money printing acts as an effective tax on the entire economy.

Basically those closest to the actual money printing suffer the least (or actually benefit), but those further away, down the line, they see price levels generally rise, to match the new number of total dollars in the system.