Eli5 Can someone explain national debt to me? What is public debt?


Is public debt the money the government owes us (the citizens) or ?

In: Economics


The US sells bonds which bring in money today for government spending. Those bonds are bought by all sorts – banks, insurance companies, pension funds, foreign governments and investors. Those who bought the bonds are entitled to interest payments and full repayment of the bond value in the future. US government bonds are considered the safest investment out there so the government can’t even entertain the thought of not paying them back or the interest rates will go way up. And interest on our debt is around 10% of government spending. If interest rates went way up it would eat up much more of the government budget.

Our national debt is the sum of all those bonds outstanding we pay interest on and will someday need to pay back. In practice, we just sell more bonds when the old ones come due for repayment.

Foreign debt is accrued by the government borrows money and the public guarantees those loans with their incomes and private property. These loans are taken to fund public policies (unemployment schemes, education, Healthcare, civil servant early retirement schemes, etc), infrastructure (roads, airports, dams, etc), or events (eg Olympics).

In reality, the government usually repays the loans through taxation over various years. A lot of times the debt takes the form of a decades long plan or repayment in order to make the repayment more equitable to all the taxpayers though the years /generations, since it is considered that they will all benefit from the policy /infrastructure.

If you have any more questions please feel free to ask.

No. Public debt is money that a government owes to various people/companies/other governments/etc. It’s not To the general public, it’s FROM the general public (or wherever else governments get their money).

You can swap that relationship around some, if you want to invest in the government. For example: You spend $50 on a $100 US Savings Bond (a “EE” bond if you want ELI65). You now own a piece of the National Debt, and the government owes you $100 in 20-years in exchange for your $50 now.

National debt isn’t all foreign owed. And part of the national debt is weirdly the country owing itself. Various government insurance and pension funds hold government bonds. This Intragovernmental Debt accounts for 23% of the total national debt. This is in effect the country investing future payouts into current spending.

The remaining 77% is Public Debt. Only 1/3 of this is foreign held which includes Japan and China for over $1 trillion each. Another huge chunk is again weirdly the government owing itself – Federal Reserve and Government is over $10 trillion of Public Debt. The public only holds a tiny slice of the actual debt – only a tenth of the Public Debt.

The thing to takeaway is while debt is a big scary word – government bonds are a nice solid low risk investment (and protected by the biggest overblown military in the world) and your insurance companies and pension funds and mutual funds are not having to worry about trying to keep all your money in something like physical gold or riskier investments.

Search the sub. Comes up every week. In short it’s the way to fund public spending when it’s over the revenue collected. Usually it’s owed to institutional investors like banks, funds and insurance companies , and less to individual citizens . Ultimately it is being paid off by the future tax payers.

In an oversimplified sense, your country borrows money from other countries. This is money that need to be paid back later with interest. The interest (and principle) is paid by your government from tax revenue.