GOVERNMENT DEBT: how does it work?

[yin_yang]

people buy up government bonds to allow them to spend more, right? so, if the government happens to default, do the investors lose their investments, or are they paid back? in the case of greece/portugal/spain, do the french and german banks lose all that money they gave them if they default, or what? do they just create more money out of thin air?

 

[Riverdale Rink Rat]

people buy up government bonds to allow them to spend more, right? so, if the government happens to default, do the investors lose their investments, or are they paid back? in the case of greece/portugal/spain, do the french and german banks lose all that money they gave them if they default, or what? do they just create more money out of thin air?

Yes, if a government defaults on its debt, the holders of the debt are not paid back.