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
It borrows from savers and investors. Anyone can loan money to the government by buying bonds.
It isn’t seen as “bad”. Only non-economist wacky theorists out there think so. Some level of government debt is necessary. How good or how bad depends on what policy options the government adopts when spending the money.
In a democracry, the electorate determines it, in the long run. Want more welfare, a bigger army, medical treatment for the poor, social security etc. These are all government spending. The people vote for the leadership that best reflects their desires.
Governments, at least developed ones with a sense of good stewardship, will balance long term and short term needs, monitor the health of the economy and borrow as needed. As long as the borrowing is not too far out of line (and this is a big debate) with the size of the economy, it is generally a necessary thing. If it borrows too much and people feel that the economy and money is at risk of devaluing, then interest rates will rise accordingly. This can also lead to inflation.
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