I see some posts regarding USA deliberately driving the stock market down, thus forcing FED to lower interest rate. And because of that, they claim US can refinance its obligations to bond holders with a lower interest rate.
Ultimately reducing their bond payments to debt holder. Similarly to refinancing a house.
EXCEPT: I don’t have a full understanding how the structure work. My gut feeling is that it’s a false narrative but I don’t want to discount certain opinions without full understanding
Can someone explain to me how this works?
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Debt restructuring is a process that allows a private or public company or a sovereign entity facing cash flow problems and financial distress to reduce and renegotiate its delinquent debts to improve or restore liquidity so that it can continue its operations.
If the US tries to do debt refinancing it will make the current disaster look like a golden age.
I don’t see how the scenario you mention would work, but what the US could do is try to “encourage” debt holders to buy lower interest longer-term bonds when their existing bonds mature. This would lower their debt interest. There is a theory that some in the administration want to do this, and Trump once mentioned that “we might owe less than people think” which some think was a reference to this scheme.
In very ELI5 terms for your scenario: You need to sell bonds to cover your debt, long term bonds if possible. To adjust the debt’s burden, you need lower rates. But there’s FED!
How to lower down the rates?
Create fear and uncertainty in the markets. People sell and seek out a safe shelter: Treasury Bonds! Demand is high, interest is low 👀
The entire US economy and a good chunk of the global economy is effectively backed by the US bond market. Bonds are more accurately a bank for the super wealthy, corporations, banks, and many governments. It’s a place that you can park vast sums of wealth and protect it from inflation. Because of large secondary markets, bonds can be sold early and for close enough to their value that they are effectively liquid. Interest rates on bonds are kept just ahead of inflation so that this dynamic remains. Any type of “restructuring” that drops interest below inflation for an extended period or non-payment of maturing bonds jeopardizes all of this and risks bankrupting a good chunk of the planet in an economic collapse that would make the great depression look like a golden age.
I actually struggle to think of a single way to damage the US or even the global economy more short of a full on nuclear war.
Debt restructuring for countries don’t work. Period.
People who think house holds works the same as countries just are not educated.