How Does the Government Borrow Money?

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According to the U.S. Treasury Department, the U.S. government borrows money primarily through the issuance of U.S. Treasury bonds. Part of the bonds are open to the public; individuals, state governments, foreign governments and corporations can buy them. U.S. trust funds with surpluses, such as Social Security, purchase non-marketable bonds, so the U.S. Treasury receives funds to pay its bills but cannot sell the bond on the marketplace.

A bondholder receives the original investment plus interest at the end of the bond term. This provides incentive for investors to purchase the bonds. Bondholders maintain the certificate of U.S. debt for several years at a time, giving the government a longer period to pay back the bond. Once an investor buys a bond, the money from the sell goes to the U.S. Treasury Department. It then pays the bills that the legislature allocates throughout the fiscal year.

Eligibility to purchase bonds and help the government borrow money is open to any entity not under government restriction or sanction. People from all over the world use U.S. Treasury bonds as a stable portfolio investment. According to the U.S. Treasury Department, as of 2014, China, Japan and Belgium are the largest holders of U.S. Treasury bonds.