Does country’s debts affect anything in that country? Why some have trillion dollars debts that look like it’ll never going to go away yet they can chill about this fact?
In: Economics
The simple answer is: it depends. Greece had a severe debt crisis throughout a lot of the 2010’s, and they were in danger of defaulting. Japan has a lot more debt than Greece currently, but is not in danger of defaulting.
This is a really complicated and complex issue, and reasonable people can disagree on what the best policy is. Generally speaking, people don’t look at the overall debt amount a country has, but rather a percentage of their debt to GDP ratio. Which makes sense, how much a country owns isn’t useful information if we don’t know how much they make. If I borrow $5, but I’m unemployed, I’m in high danger of not paying that back. If I borrow $1,000, but I make $500,000 a year, you’re thinking my odds are good I’ll pay it back.
Another crucial part of the puzzle is what currency is the debt in and who owns the debt. Greece almost defaulted because their debt was mostly in the Euro, which is controlled by all the European countries. So Greece doesn’t have much of a say in making changes to it to help themselves out. Japan’s debt is internally owned for the most part. That gives them the luxury of making adjustments to their own currency.
And lastly, public debt isn’t always a bad thing. In fact, it’s a useful thing. You don’t want a government to have no debt. It’s a beneficial thing to have it; public debt is very different from private debt. Governments don’t end. Debt doesn’t need to be paid off the way an individual does.
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