[rmah]

Central banks do not issue bonds. What they've been doing is buying bonds issued by national governments. Usually on the public markets, not directly. Where do they get the money to buy the bonds? Why they just magically create it. That's their job.

Central banks do not care, per se, if they have to "pay incredible amounts of interest to the banks" since they literally create (and destroy) money. Central banks do not need to buy or sell gold to create money since money is no longer gold backed. Operationally, central banks can create any amount of money they want anytime they want. Obviously, there are political considerations though.

"More likely is they allow fiat to devalue", yes. That is exactly what they will do if inflation increases substantially. Though not because it will make their loans "loans easier to pay off" since central banks have no loans to pay off; instead they get paid coupons and principal on they bonds.

[gh55]

Thanks, your understanding is better than mine. Its the national governments who would have to pay the incredible amounts of interest, and may fund that by selling the gold they own (https://www.usfunds.com/investor-library/frank-talk-a-ceo-bl...). Interested to hear whether you think gold will increase or decrease its value, over the next years.

[rmah]

Rising interest rates will only make new debt more expensive for governments. Existing debt will actually become cheaper as rates rise. If rates rise high enough, they could actually call (buy back) the bonds early for less than face value. This is because most government debt is fixed rate.

To use an example, you issue a 10 year bond with a face value of $100 with a 1.00% coupon (i.e. you need to pay $1/yr for 10 years and then $100 at maturity after 10 years). Fast forward 5 years -- rates have risen for similar risk debt rise to 5.00%. You've paid out $5 so far in coupons... but that bond (now 5 years to maturity) will cost $84 on the open market. So you simply buy it back for $84. That means you spent $84 + $5 = $89 for $100. Woohoo!

One financial strategy for governments would be to 1) issue excessive debt when rates are very low, 2) don't spend all the money, 3) buy back some of the debt when rates go up for less than you issued it, thus further lowering the cost of debt for the portion you did spend. Sadly, most governments have trouble with step #2.

As for gold, I have no idea. Historically, gold was an inflation hedge (i.e. it's price rose with inflation). But so are a lot of other things. At this point, there's nothing special about gold except that it stays shiny forever.