Who does the government borrow money off to get credit to increase spending? And why is it seen as so bad for the government to increase its debt? I guess the main thing that I want to know is who holds a government accountable for their debt and what will happen if a government just continues to borrow and increase their debt?
In: Economics
Where to they “get it”? That’s easy –
governments “get debt” when they have to borrow money to pay their bills, just like a person using a credit card to buy something when they don’t have the cash on them when they want to make a purchase. Governments sell bonds and can directly borrow money from institutions and even other governments. Similar how a person can buy a car on credit or get a car loan.
Why is it bad? That’s trickier. If you are a person who got a new job, but needs a car to get to work….then going into debt to buy the needed car isn’t BAD – it allows you do work, in he hopes you can pay the loan off later and still come out ahead in the long run.
But governments have a nasty habit of letting their debt grown and grow and grow to levels where they might even have trouble paying the interest on the loan AND pay their current bills….without borrowing more money to do it.
This had lead the collapse of the economy in more than a few countries in history…..and has even contributed to the fall of the governments of some countries. Of course many people at the time didn’t think it was possible….and some still have similar thoughts today….
So….debt in and of itself isn’t bad…..it’s **how** you manage your debt, as a person or a country (government).
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