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
>Who does the government borrow money off to get credit to increase spending?
Anyone willing to lend it to them. A lot of countries sell bonds which are sold at a discount to the face value (like ‘buying’ a $10 bill for $9) and also collect interest. These have a set maturity date.
This is pretty popular because its about as safe of an investment as you can make. Its even safer than simply keeping cash in a safe since it accounts for inflation.
> And why is it seen as so bad for the government to increase its debt?
There’s some risk in borrowing and lending. People occasionally don’t pay back their debts. But a sovereign country is generally a safe bet though it does happen.
> who holds a government accountable for their debt and what will happen if a government just continues to borrow and increase their debt?
whoever lent them the money. If borrowing from a country is seen as risk then interest rates might be higher to induce more people to take a chance. Taxes may go up and spending gets cut if that happens and people want better reassurance that they aren’t going to lose money. So its a balance to figure out the benefits of borrowing now (you can’t pay wages for workers on promises but those workers do important work) without overextending yourself.
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