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
Government debt is to its citizens, investors ,and some foreign governments through “bonds” – kind of like a savings account but a set interest and time you can get it back. The government buys or sells more or less of these bonds to cover the expenses they have.
Why or whether it is bad is a bigger question! Think of your life – if you have a bunch of credit card debt from going on vacation to New Zealand, that is debt you have to pay off and which you get no long-term benefits from (despite the fun you had in NZ). You now have debt of $10,000. But also, think about the house you bought. You have debt of $300,000, but you also have an asset worth (presumably) $300,000 to $400,000, so that mortgage might be what some people call “good debt” compared to your “bad debt” on your credit card.
Government debt isn’t readily comparable as good debt or bad debt when we look at the raw numbers. Some government spending is like a NZ vacation, some of it is like an asset purchase, some of it is like an investment that will get money back later. It is bad for government debt to increase on those “vacation spending” types of things (corporate bailouts, money for special interest groups, high spending on wars, etc), but good on assets (public lands for parks/forests, investments like food stamps/medicaid (which reduce the cost to care for those people later)). The only way we can really know what is good and bad debt of the government is to look closer at the bills and laws passed that spend that money.
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