Now in theory I should already know this, since I am a teacher for politics, but I have never been really able to wrap my head around it.
I understand that high debts of a state are not that much of a problem as long as it is not too high in comparison to the gross state product.
I still struggle to understand how it has come to this situation. Pretty much every state has to pay massive amounts just to pay the interests on their debts.
Now if only a few states had this problem, I could understand it. But it’s literally every state. I of course understand that sometimes in a time of crisis there is need for deficit spending. However I fail to understand how this is really sustainable. Isn’t there a possibility to just make a cut and start anew without debts somehow? I assume we would end up in the same situation as before a few decades later, but why is this system only working with massive debts? This seems like a giant flaw to me. From what I gathered this is basically WAD, but how?
Thanks in advance.
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Debt itself is not the problem if you assume growth lies ahead. (Which is the foundation of our current economic system) States don’t spend like you and I, they are not consuming in the same vein and they are more like a business in that sense.
If you operate a business that makes x a year and it would take you 10 years to save up enough money to buy new machines that double your output, you will probably have less money in twenty years than if you bought the same machines with debt and paid back the interest with the increased output for the first 10 years.
Governments are similar, you could have infrastructure that is entirely within budget or you could have better infrastructure that increases productivity more than the interest is.
In addition Governments are very big and a lot more stable than companies. You wouldn’t bet on Apple being less likely to crumble to dust in the next 20 years than the US Government for example. So buying US debt, essentially lending money to the US, is seen as a very safe investment, which is worth a lot if you know about investments.
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