If you’re able to take out debt at a lower rate than you make money off it, then its a pretty good deal. Many countries, particularly developed western ones, are able to take out debt at extremely low rates, so low that its far better to take out debt and spend it now, since you can make more money that way.
For example if I can take out a loan at %5 but make a 10% return, thats a ‘free’ 5% profit!
The vast majority of national debts are owned by private companies, especially investment firms. Generally these companies are local to their country they are buying the debt from. So most debt is owned by people/companies in that country
But basically yes, the main economic system in the world is based on debt : every dollar in existance is owed to somebody. Stevenson explains that the rise in inequality is the result of an expanding portion of the debt being own by fewer and fewer people (the billionaires)
Government debt, for a country that prints its own fiat currency, is not like household debt- Its a simple equation for the difference between money spent and money taken out of the economy via taxes. These governments spend first, tax second. They don’t owe money to anyone.
Generally, the vast majority of national debt is owned by the nation’s citizens. Cancelling it, while plausible, isn’t desirable since it would a large one off tax on the nation’s population and effectively destroy the government’s ability to raise debt in the future (not to mention push back from external debt holders and their nations).
In terms of repayment, think of it like this. Nation’s people and firms, that is the nation’s tax base, holds the substantial majority of the debt. The question is less whether the nation can repay it, and instead how the nation chose to tax its population.
Much of the economic system works out something like this:
Andrew has $100.
He lends it to Bill, who needs money to build a school.
Carl wants to build a road, so he also asks Andrew for a loan.
Andrew doesn’t have $100 in his hand. But he does have a note that says Bill owes him $100.
Because of financial rules, he can then loan that $100 to Carl.
Andrew now has $0. But both Bill and Carl owes him $100 each. So technically Andrew has $200.
Andrew can then loan that $200 to Dave. So now Andrew has 0 money, but is owed $400…..
All this works, as long as no one actually starts looking too closely at where the actual, physical money is.
That’s why banks and governments are get so scared when the public loses trust in a bank.
If everyone tries to withdraw their savings all at once, it will become obvious that the bank doesn’t actually -have- all that money. It’s all built on a series of “I Owe You”s.
Just a side note, a small handful of countries have net positive financial assets. Norway certainly, and many of the Persian Gulf states, in both cases due to significant revenue from oil and gas extraction. These countries maintain large sovereign wealth funds where they invest their excess assets.
But it may help to understand the nature of government debt to know that even Norway still carries some debt. It could dip into its sovereign wealth fund to pay all that debt off immediately, but it doesn’t for two reasons. First, the debtholders (many of them Norwegian citizens) don’t want the debt to be paid off immediately. They want to collect the interest at the times specified in the debt contract, because that’s when they will need money for their own consumption. If Norway paid them back now, they’d have to go lend the money to someone else. Second, a certain level of sovereign debt can be financially advantageous. If Norway’s economy grows faster than the interest rate on the debt, then they are leaving money on the table by not borrowing now. Sovereign debt is, in essence, a bet on the growth of one’s own economy. If the government is confident they can use borrowed money in a way that will grow the economy, then they should.
Mostly to their own citizens. Bonds, Treasury bills, etc. your state and local governments have the same kind of debt.
Something like 70% of the national debt in the US is owed to its citizens.
Don’t believe the mis informed people who will tell you that China owns the US bc of the national debt. China is top 2 foreign holder of the debt. I think Japan has moved to #1 foreign owner of US debt but that can change year over year.
Every country had debt, though not all of them have significant amounts of capital markets-type financial debt you are probably thinking of.
Most do however, and the big ones pretty much all do.
Not all countries are in net debt. Some – typically petrostates or very strong exporters – have large reserves that outweigh their debts. But they still issue debt as it is useful for operating a modern financial system with banks etc.
Countries are indebted to anyone who buys their debt. Often the bulk of it is to their own population, often through pension funds or intermediate via banks (taking deposits and buying government paper).
Can it be cancelled? Yes, but that is typically a bad thing! A default destroys trust in the government’s financial credibility which means people don’t want to lend money and – simply put – interest rates shoot up which makes funding anything harder, so economic growth slows.
Is it ever likely to be repaid? In aggregate, no – countries often go through cycles of reducing it but rarely pay it off. Specific debts get paid back all the time though, and new debt issued to refinance it.
Countries typically aim to service their debt interest and ideally grow their economy so it’s larger relative to their debt stock. It’s rare they make sustained efforts to reduce it.
Every country has both debts and assets, foreign and domestic, it is the ‘net’ that matters and the ability to service the debt. Since 1970, only Clinton paid down US net debt. Defaults happen and can threaten the ‘system’, occasionally debts are cancelled as part of aid or rescue packages but more commonly restructured/extended.
This isn’t a complete answer but one of the things people miss is that countries usually “owe” huge amounts to themselves. Every bit of promised or budgeted money that hasn’t been passed on yet, frinstance from national to state level, is debt. Central banks usually own a ton of their country’s own debt. Even different departments owe money to each other. So while it all gets lumped in with “the national debt” it’s one hand owing money to the other and is pretty much just accounting.
Another thing is that often countries owe each other money- we buy each other’s gilts etc. But it’s standard not to cancel this out so I owe you £10 and you owe me £10 and we talk as though the total debt is £20 not £0
And it’s really important to remember that countries can borrow so cheaply that as long as you spend it even slightly sensibly, it’d be daft not to. WHen a politician says “borrowing is bad” they are fundamentally saying “we are too stupid/cannot be trusted to borrow at a low rate and get .1% more in return”. But every company owner in the world, every mortgage holder, understands that borrowing can be the best and cheapest option. The “living within our means” argument is the same as “never take out a mortgage, rent forever” or “never grow your business with borrowing”.
But it’s real easy, when we look at the mount of a country’s budget that’s spent on servicing the debt ie interest, to forget how much of the budget was created with borrowing.
It will be repaid, but new debt will be issued to replace it.
Cancelling debt isn’t really feasible.
Most of the debt is bonds owned by regular citizens.
So if I buy a bond for $1000 from Canada, and a Canadian buys a $1000 bond from the US, it would not be fair to anyone for those governments to say that they cancel out.
Similarly if the Canadian Govt and US Govt buy bonds from each other, those bond might not cancel out because they have different deal terms. Maybe Canada buys a 10y bond at 4% and the US buys a 15y bond at 3% – they are not the same, so they do not cancel out. Government debt is almost never fungible.
Tom goes to a remote town and finds an inn. Unbeknownst to Tom, the town is $300 in debt.
At the inn he books a night for $100, heads to his room and goes to sleep.
Anna the innkeeper then looks at the $100, and thinks, ah, I can pay off the $100 I borrowed from Bob. So off she goes.
Bob after receiving the $100 then thinks, oh, I owed Carl $100, I’ll give it back to him.
Carl being happy to get that $100 thinks oh finally, I can pay Anna back for that night at the inn when my roof was being repaired and then goes and gives the $100 to Anna.
The town no longer has any debt.
In the morning, Tom had a terrible night and didn’t sleep and demanded his money back.
The town is now debt free due to “money velocity”, but there is no money.
So yes, it could, in theory, be repaid, but enough money has to be injected into the system to actually pay it off. Anyone know any trillionaires?
One is the government being in debt. The government is just another organization, they have a bank account and a credit score just like any corporation or nonprofit. They can use their credit score to take out loans, assuming they find a lender willing to lend to them. These lenders can be anyone – random citizens, companies, banks, other governments, etc.
The other is the net sum of all debt within a country. This includes all the debt owed by private institutions as well. Same thing, the private borrowers also have bank accounts and credit scores and borrow from any lender willing to lend to them, so random citizens, companies, banks, other governments, etc.
Governments take on debt all the time, usually to cover cash flow. If you are getting paid next week but you need groceries today, you might buy them with your credit card, which is a kind of loan. Then you (hopefully) pay back the money after you get paid. Governments do the same thing: taxes are collected in April, but they need to pay firefighters today, so they take on debt to cover cash flow. Or maybe something more long term: they’re building a new highway and take on a 30-year loan to pay it off with tax revenue over the life of that highway, rather than all at once, the same way you might do with a house.
When a government takes out a loan, they don’t walk down to the local bank and fill out an application. Instead, they sell bonds. A bond is a type of certificate that you sell for a dollar amount, with the agreement that you can cash that certificate in after X time for that amount or money plus Y interest. So you buy a bond for $100 and in ten years you can cash it in for $150. These bonds are sold on the open market, like stocks, and can be resold to other people as well.
So the answer to who a country owes money to is whoever owns those bonds. Since they’re sold on the open market, that could be anyone: your own citizens, other countries citizens, or other governments. Since the government taking on debt is the same government issuing the bonds, they are setting up the terms of their own loan. So no one can cancel the debt except the government that took on the debt (which they could do, but would make it super hard to issue new bonds if they have a reputation for screwing over bond holders). By the same token, no one can call the debt in early. The bond matures when it matures and not a day sooner.
No. And most debt is owned by private individuals and organisations. For example a significant amount of us debt is owned by the federal reserve, a private bank.
For example, the vast majority of the US’ monstrous multi trillion dollar debt is in the form of treasury bonds held by private US citizens or US based institutions.
You absolutely wouldn’t want to cancel mutual debt, it would torpedo most countries and start the biggest depression of the modern age. Debt is an important part of a functioning economy.
I know of no country that doesn’t have debt.
The debt us owed to domestic and foreign residents, private investors, commercial banks, multilateral development banks (like the World Bank), and other governments
Comments
A lot of countries have a certain amount of debt to each other, but also, they have a certain amount of debt to citizens and companies.
If you’re able to take out debt at a lower rate than you make money off it, then its a pretty good deal. Many countries, particularly developed western ones, are able to take out debt at extremely low rates, so low that its far better to take out debt and spend it now, since you can make more money that way.
For example if I can take out a loan at %5 but make a 10% return, thats a ‘free’ 5% profit!
The vast majority of national debts are owned by private companies, especially investment firms. Generally these companies are local to their country they are buying the debt from. So most debt is owned by people/companies in that country
At this point, I wouldn’t be surprised to find that the global economy is one giant Ponzi scheme.
Gets repaid all the time. If you have savings bonds, when you cash them in, you were repaid for loaning money to the government.
Yes, each other and their citizens.
Like the majority of US debt is owed to American citizens in the form of bonds in people’s retirement accounts
You should check Gary’s Stevenson’s YT channel (https://www.youtube.com/results?search_query=gary%27s+economics). He’s really good at explaining it.
But basically yes, the main economic system in the world is based on debt : every dollar in existance is owed to somebody. Stevenson explains that the rise in inequality is the result of an expanding portion of the debt being own by fewer and fewer people (the billionaires)
edit: typo
Themselves in the form of central banks, their citizens, banks and other financial companies and other countries’ central banks
Government debt, for a country that prints its own fiat currency, is not like household debt- Its a simple equation for the difference between money spent and money taken out of the economy via taxes. These governments spend first, tax second. They don’t owe money to anyone.
This is the basis of modern monitary theory.
Generally, the vast majority of national debt is owned by the nation’s citizens. Cancelling it, while plausible, isn’t desirable since it would a large one off tax on the nation’s population and effectively destroy the government’s ability to raise debt in the future (not to mention push back from external debt holders and their nations).
In terms of repayment, think of it like this. Nation’s people and firms, that is the nation’s tax base, holds the substantial majority of the debt. The question is less whether the nation can repay it, and instead how the nation chose to tax its population.
They are in debt to the people who buy government bonds/treasury bills/certificates of deposit.
So the citizens own the debt.
If you cancel it, your government would fail as everyone votes you out, or overthrows you for stealing all their money.
No, it will never really be repaid.
Much of the economic system works out something like this:
Andrew has $100.
He lends it to Bill, who needs money to build a school.
Carl wants to build a road, so he also asks Andrew for a loan.
Andrew doesn’t have $100 in his hand. But he does have a note that says Bill owes him $100.
Because of financial rules, he can then loan that $100 to Carl.
Andrew now has $0. But both Bill and Carl owes him $100 each. So technically Andrew has $200.
Andrew can then loan that $200 to Dave. So now Andrew has 0 money, but is owed $400…..
All this works, as long as no one actually starts looking too closely at where the actual, physical money is.
That’s why banks and governments are get so scared when the public loses trust in a bank.
If everyone tries to withdraw their savings all at once, it will become obvious that the bank doesn’t actually -have- all that money. It’s all built on a series of “I Owe You”s.
Do you have money in a bank? Then you.
Just a side note, a small handful of countries have net positive financial assets. Norway certainly, and many of the Persian Gulf states, in both cases due to significant revenue from oil and gas extraction. These countries maintain large sovereign wealth funds where they invest their excess assets.
But it may help to understand the nature of government debt to know that even Norway still carries some debt. It could dip into its sovereign wealth fund to pay all that debt off immediately, but it doesn’t for two reasons. First, the debtholders (many of them Norwegian citizens) don’t want the debt to be paid off immediately. They want to collect the interest at the times specified in the debt contract, because that’s when they will need money for their own consumption. If Norway paid them back now, they’d have to go lend the money to someone else. Second, a certain level of sovereign debt can be financially advantageous. If Norway’s economy grows faster than the interest rate on the debt, then they are leaving money on the table by not borrowing now. Sovereign debt is, in essence, a bet on the growth of one’s own economy. If the government is confident they can use borrowed money in a way that will grow the economy, then they should.
Mostly to their own citizens. Bonds, Treasury bills, etc. your state and local governments have the same kind of debt.
Something like 70% of the national debt in the US is owed to its citizens.
Don’t believe the mis informed people who will tell you that China owns the US bc of the national debt. China is top 2 foreign holder of the debt. I think Japan has moved to #1 foreign owner of US debt but that can change year over year.
Let no debt remain outstanding, except the continuing debt to love one another, for whoever loves others has fulfilled the law. Romans 3:18.
Every country had debt, though not all of them have significant amounts of capital markets-type financial debt you are probably thinking of.
Most do however, and the big ones pretty much all do.
Not all countries are in net debt. Some – typically petrostates or very strong exporters – have large reserves that outweigh their debts. But they still issue debt as it is useful for operating a modern financial system with banks etc.
Countries are indebted to anyone who buys their debt. Often the bulk of it is to their own population, often through pension funds or intermediate via banks (taking deposits and buying government paper).
Can it be cancelled? Yes, but that is typically a bad thing! A default destroys trust in the government’s financial credibility which means people don’t want to lend money and – simply put – interest rates shoot up which makes funding anything harder, so economic growth slows.
Is it ever likely to be repaid? In aggregate, no – countries often go through cycles of reducing it but rarely pay it off. Specific debts get paid back all the time though, and new debt issued to refinance it.
Countries typically aim to service their debt interest and ideally grow their economy so it’s larger relative to their debt stock. It’s rare they make sustained efforts to reduce it.
Every country has both debts and assets, foreign and domestic, it is the ‘net’ that matters and the ability to service the debt. Since 1970, only Clinton paid down US net debt. Defaults happen and can threaten the ‘system’, occasionally debts are cancelled as part of aid or rescue packages but more commonly restructured/extended.
This isn’t a complete answer but one of the things people miss is that countries usually “owe” huge amounts to themselves. Every bit of promised or budgeted money that hasn’t been passed on yet, frinstance from national to state level, is debt. Central banks usually own a ton of their country’s own debt. Even different departments owe money to each other. So while it all gets lumped in with “the national debt” it’s one hand owing money to the other and is pretty much just accounting.
Another thing is that often countries owe each other money- we buy each other’s gilts etc. But it’s standard not to cancel this out so I owe you £10 and you owe me £10 and we talk as though the total debt is £20 not £0
And it’s really important to remember that countries can borrow so cheaply that as long as you spend it even slightly sensibly, it’d be daft not to. WHen a politician says “borrowing is bad” they are fundamentally saying “we are too stupid/cannot be trusted to borrow at a low rate and get .1% more in return”. But every company owner in the world, every mortgage holder, understands that borrowing can be the best and cheapest option. The “living within our means” argument is the same as “never take out a mortgage, rent forever” or “never grow your business with borrowing”.
But it’s real easy, when we look at the mount of a country’s budget that’s spent on servicing the debt ie interest, to forget how much of the budget was created with borrowing.
Everyone is indebted to your future economic output
It will be repaid, but new debt will be issued to replace it.
Cancelling debt isn’t really feasible.
Most of the debt is bonds owned by regular citizens.
So if I buy a bond for $1000 from Canada, and a Canadian buys a $1000 bond from the US, it would not be fair to anyone for those governments to say that they cancel out.
Similarly if the Canadian Govt and US Govt buy bonds from each other, those bond might not cancel out because they have different deal terms. Maybe Canada buys a 10y bond at 4% and the US buys a 15y bond at 3% – they are not the same, so they do not cancel out. Government debt is almost never fungible.
Tom goes to a remote town and finds an inn. Unbeknownst to Tom, the town is $300 in debt.
At the inn he books a night for $100, heads to his room and goes to sleep.
Anna the innkeeper then looks at the $100, and thinks, ah, I can pay off the $100 I borrowed from Bob. So off she goes.
Bob after receiving the $100 then thinks, oh, I owed Carl $100, I’ll give it back to him.
Carl being happy to get that $100 thinks oh finally, I can pay Anna back for that night at the inn when my roof was being repaired and then goes and gives the $100 to Anna.
The town no longer has any debt.
In the morning, Tom had a terrible night and didn’t sleep and demanded his money back.
The town is now debt free due to “money velocity”, but there is no money.
So yes, it could, in theory, be repaid, but enough money has to be injected into the system to actually pay it off. Anyone know any trillionaires?
There’s 2 separate things here.
One is the government being in debt. The government is just another organization, they have a bank account and a credit score just like any corporation or nonprofit. They can use their credit score to take out loans, assuming they find a lender willing to lend to them. These lenders can be anyone – random citizens, companies, banks, other governments, etc.
The other is the net sum of all debt within a country. This includes all the debt owed by private institutions as well. Same thing, the private borrowers also have bank accounts and credit scores and borrow from any lender willing to lend to them, so random citizens, companies, banks, other governments, etc.
Each country is
Governments take on debt all the time, usually to cover cash flow. If you are getting paid next week but you need groceries today, you might buy them with your credit card, which is a kind of loan. Then you (hopefully) pay back the money after you get paid. Governments do the same thing: taxes are collected in April, but they need to pay firefighters today, so they take on debt to cover cash flow. Or maybe something more long term: they’re building a new highway and take on a 30-year loan to pay it off with tax revenue over the life of that highway, rather than all at once, the same way you might do with a house.
When a government takes out a loan, they don’t walk down to the local bank and fill out an application. Instead, they sell bonds. A bond is a type of certificate that you sell for a dollar amount, with the agreement that you can cash that certificate in after X time for that amount or money plus Y interest. So you buy a bond for $100 and in ten years you can cash it in for $150. These bonds are sold on the open market, like stocks, and can be resold to other people as well.
So the answer to who a country owes money to is whoever owns those bonds. Since they’re sold on the open market, that could be anyone: your own citizens, other countries citizens, or other governments. Since the government taking on debt is the same government issuing the bonds, they are setting up the terms of their own loan. So no one can cancel the debt except the government that took on the debt (which they could do, but would make it super hard to issue new bonds if they have a reputation for screwing over bond holders). By the same token, no one can call the debt in early. The bond matures when it matures and not a day sooner.
No. And most debt is owned by private individuals and organisations. For example a significant amount of us debt is owned by the federal reserve, a private bank.
Their own citizens, mostly.
For example, the vast majority of the US’ monstrous multi trillion dollar debt is in the form of treasury bonds held by private US citizens or US based institutions.
You absolutely wouldn’t want to cancel mutual debt, it would torpedo most countries and start the biggest depression of the modern age. Debt is an important part of a functioning economy.
I know of no country that doesn’t have debt.
The debt us owed to domestic and foreign residents, private investors, commercial banks, multilateral development banks (like the World Bank), and other governments
According to Robin Williams, some guy named Vinnie.
Any answer that isn’t the illuminati is a lie to keep your head buried in the sand.