Should I Be Worried About A Government Default?
Is this actually true and if so, should I be worried about a default since I own quite a few US bonds? I can't see how this is sustainable at all. I asked my financial adviser and she laughed.
What am I missing?
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The interest payments on that debt is much lower. The debt is in the form of bonds, which people want, just like the bonds you own. People willingly give their money to the US Government whether it needs it or not.
The US Government creates more bonds, which it exchanges for other people's money, because there is an insatiable demand for US government bonds from people like you.
Yes, the US Government uses new investors to pay old investors.
It simultaneously has several avenues to service the debt (to pay it off). Even in the event of less demand from new investors, or a constriction in the governments revenue streams, it has a large and diverse portfolio and resources that it can tax and take to pay the old investors, preventing it from default. You'll hear the word 'austerity' long before there is a real need to worry a consequential default. (The US has missed payments several times, but they were inconsequential, as it was more of an administrative hiccup than lack of funds)
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