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
The government borrows money by issuing bonds. Investors buy these bonds because they’re considered safe investments, and in doing so, lend money to the government. The government then pays them back in the future with interest.
It can be bad because that money that they spend on interest eats up more of their future budget. However, in theory, whatever the government spends their borrowed money on should increase tax revenue in the future enough to outweigh the interest. In practice, this isn’t always the case, which is why the deficit keeps growing every year.
Latest Answers