Eli5: How can some country have trillions of dollar in debt like Japan but still functional without any consequences?
In: 101
National debt is not indicative of economic stability, as proven by countries like Japan. There’s an important distinction to be made between the national debt and the deficit. The. *national debt* is the sum total of all of a given country’s debt, public and private. Essentially, it’s everyone’s mortgages, car loans, student loans, or whatever other loans that people would ever take out all added up. The *deficit* is the difference between the amount of money a government raises and the amount of money it spends, or essentially the amount of money the government needs to borrow to pay for all the stuff it does. Large *deficits* can be bad for an economy, but *debt* in and of itself has a very low correlation with economic activity and growth; as a matter of fact the things that people incur debts to pay for (houses, cars, or whatever you buy with a credit card) actually help economies grow, so it can be argued that debt is required for a country’s economic welfare. *Deficits* on the other hand, can hamstring a government’s ability to continue providing essential services to its citizens, and that’s why you’ll see a lot of talking heads saying they are a bad thing.
Japan has a huge amount of *debt*, but most people in Japan are able to pay off this debt. They have to go to work to pay off their debts, pay for goods and services that allow them to go about their day, and whatever assets they incurred debt for typically continue to gain value over time. For as long as the Japanese are able to pay off this debt, it’s no problem. Once this debt becomes overbearing, and people have to start sacrificing participation in the economy (not buying crap) to pay off this debt, it becomes an issue. Until then, there’s no problem at all with the national debt.
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